Emerging markets rebound as pause in Brexit campaign brings calm

LONDON, June 17 — Emerging-market stocks and currencies pared their weekly losses as investors bet that concerns of Britain’s potential exit from the European Union are overdone and as campaigning for the June 23 referendum remained suspended for a second day.

Equity gauges in Poland, Hungary and the Czech Republic advanced at least 1 per cent. Greek stocks jumped the most in two months after euro-area finance ministers approved a €7.5 billion (RM34.6 billion) loan to the debt-ridden nation.

Russia’s ruble led currencies higher as oil rebounded from the longest streak of losses in five months. South African government bonds climbed for a third day.

The premium investors demand to own emerging-market sovereign debt over US Treasuries narrowed for the first time in seven days.

Developing-nation stocks and currencies rose on five days and fell on five days in the past two weeks as sentiment swayed between optimism about the Federal Reserve’s “lower-for-longer” policy and concern over how a British vote to leave the EU would impact the global economy.

While many polls indicate an advantage for the Brexit campaign, bookmakers’ odds attach a 69 per cent probability the “remain” side will win.

“Markets are in a volatile mood,” said William Jackson, a London-based emerging-market analyst at Capital Economics Ltd, which projects a 25 per cent gain in equities in the next two years.

“Investors are sensing that perhaps some of the reaction to the polls was overdone because for most emerging markets, the impact of Brexit will probably be quite limited.

“Expectations of Fed tightening were pushed back earlier this month and the benefits may be starting to flow through again.”

Both sides of the UK referendum suspended their campaigns after a lawmaker who had advocated voting to remain in the EU was murdered.

The pause in the flow of arguments for and against Brexit gave investors time to weigh the fundamental outlook for emerging-market assets beyond next week’s events.

“The markets should fare relatively better for the rest of the year as valuations have improved after recent losses and there is some stability in the growth outlook as well as oil prices,” Jackson said.

Stocks

The MSCI Emerging Markets Index rose 0.8 per cent to 805.77 as of 12:noon in London, paring its retreat this week to 2.2 per cent and bouncing off its 100-day moving average. All 10 industry groups advanced, with financial and technology companies contributing the most to the gains.

The MSCI Emerging Markets Currency Index increased 0.2 per cent, paring its weekly loss to 0.6 per cent, its first decline since the five days ended May 20.

The WIG 20 Index rose 1 per cent in Warsaw. The BUX Index in Budapest added 1.8 per cent.

Prague’s PX Index headed for a one-week high. Market prices in Europe mostly reflect Brexit risks, Paris-based asset manager Carlton Selection said.

Chinese stocks traded in Hong Kong rebounded, with the Hang Seng China Enterprises Index rose 0.9 per cent to pare its weekly loss to 3.9 per cent.

The Shanghai Composite Index climbed 0.4 per cent and was down 1.4 per cent from June 10.

The ASE Index in Greece jumped 4.4 per cent, ending a seven-day 15 per cent slump. Euro-zone finance chiefs endorsed the loan disbursement at a meeting of the European Stability Mechanism, the 19-nation bloc’s firewall fund, in Luxembourg yesterday.

The payout will cover Greece’s debt-servicing needs as well as the clearing of some arrears.

Currencies

The ruble strengthened 0.8 per cent against the dollar and South Africa’s rand gained 0.7 per cent. Oil pared a weekly loss as a drop in the US currency bolstered the appeal of commodities. South Korea’s won fell 0.2 per cent in an erratic session, even after officials said speculation that North Korean leader Kim Jong Un had died was unfounded.

The MSCI Emerging Markets Currency Index climbed 0.3 per cent, trimming its weekly retreat to 0.6 per cent.

Bonds

South Africa’s 2026 bonds rose, sending the yield down six basis points to 9.07 per cent. Polish, Hungarian and Turkish sovereign notes also climbed. The premium on emerging-market securities, as measured by JPMorgan Chase & Co indexes, fell four basis points to 407.

“Growth deceleration may be at an inflection point for a number of developing countries,” said Gregory Saichin, who manages US$2.4 billion (RM9.8 billion) as chief investment officer for emerging-market fixed-income at Allianz Global Investors Europe GmbH.

“The top-down looks encouraging, supported by continued monetary accommodation. For oil and commodity countries, there is the perception that supply is being further constrained by lack of investment while demand is steady or growing.” — Bloomberg

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