US diplomacy calms emerging markets as Israel stocks rebound

Emerging-market assets steadied during European hours, after a selloff in Asia, as a US diplomatic push to contain the war in the Middle East and a victory for a market-friendly coalition in Poland calmed investors’ nerves.

The index for emerging markets in Europe, Middle East and Africa drifted higher as US Secretary of State Antony Blinken stepped up efforts to ensure humanitarian aid to people in Gaza and President Joe Biden considered a visit to Israel. Investors bet the efforts will prevent the war spilling over into a wider conflict.

Meanwhile, Polish stocks, bonds and currency rallied after the pro-European-Union Civic Coalition neared victory in Sunday’s general elections. Money managers including Goldman Sachs Group said the new government is likely to bring in prudential fiscal policies and lead the central bank to become more hawkish.

“The Civic Coalition promotes the return of a more EU-friendly stance and its victory would increase the prospect of an acceleration of the disbursement of European Union transfers to Poland,” Kevin Daly, a strategist at Goldman Sachs, wrote in a note. “We expect the central bank reaction function to now turn more hawkish.”

Earlier, broad emerging-market indexes posted losses amid concern over a US plan for sweeping measures to restrict China’s access to advanced semiconductors and chipmaking gear. Asian chip stocks fell, driving the MSCI Emerging Markets Index to a decline of as much as 0.8%. The Thai baht and South Korean won posted the biggest drops in the currency market.

Israel’s benchmark equity index rose the most in two weeks and Egypt’s main gauge recaptured a record high. US officials intensified their diplomatic efforts to warn Iran against entering the conflict and to ensure the safety of civilians in Gaza.

Action in emerging markets is likely to get more intense as markets in the Americans open. The focus would be on Ecuador, where a 35-year-old scion of a business family won the presidential election. Daniel Noboa, a political novice, has a year and a half to get a grip on a country besieged by powerful cocaine cartels, struggling to service its debt, and beset by instability in congress that has made it difficult to pass laws or raise taxes.

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