London - Emerging market equities hit
five-day highs on Tuesday, with the Moscow bourse at fresh peaks
as investors shrugged off the results of Italy's referendum,
while a weaker dollar helped currencies such as the rand and the
lira make gains.
Italian Prime Minister Matteo Renzi said he would resign
after the weekend's referendum, which saw voters reject his
plans for constitutional reform, initially stoking fears about
political stability and Italy's banking system.
But financial markets recovered on Tuesday with the
benchmark emerging equities index up 0.8 percent and
set for its best performance in a week, helped by strong gains
from emerging Europe to Asia.
"The Italy concern was maybe too much priced in, so we saw a
reversal," said Jakob Christensen, head of emerging markets
research at Danske Bank. "The fear that we may have seen a
meltdown in Italy, which could hit global risk sentiment, is
waning with the expectation that we will get a new government of
some sort."
He added that markets were also eyeing Thursday's European
Central Bank meeting, to see if it will extend its bond-buying
programme by six months. "That would be positive for emerging
market currencies," he said.
Moscow shares outperformed, up 0.9 percent at record
highs. Russian central bank first deputy governor Ksenia
Yudayeva said Russia's economy was recovering and would return
to growth in the first quarter of 2017.
Polish stocks rose 1.1 percent, extending Monday's
3.5 percent gains to a three-month high after Poland dodged a
credit downgrade to junk status from S&P Global on Friday.
Turkish stocks rallied 1.4 percent and Prague shares
rose 0.9 percent.
Earlier in Asia, South Korean stocks closed up 1.35
percent at two-week highs. Scandal-hit President Park Geun-hye
said she would accept the result of an impeachment vote this
week.
Taiwan stocks rose almost 1 percent and Hong Kong
shares climbed 0.75 percent on the second day of the
Shenzhen-Hong Kong stocks link.
But Chinese mainland stocks fell further in the
wake of scathing comments by a securities regulator about
"barbaric" takeovers.
With the dollar holding near a three-week low against
a basket of currencies, some emerging market currencies made
some headway.
The South African rand firmed 0.7 percent although
third-quarter economic growth was below forecast at 0.2 percent.
"Today's data highlight that the South African economy
remains extremely weak," John Ashbourne, Africa economist at
Capital Economics, said in a note, suggesting interest rates
will be left unchanged rather than hiked.
Christensen said the rand could still be benefiting from the
fact that ratings agency S&P Global held off downgrading South
Africa's sovereign debt to junk on Friday. "Half the market
thought they would lose its investment grade rating, so that is
giving the currency some tailwind. But that's not to say they
are off the hook."
The Turkish lira also strengthened 0.3 percent from
recent record lows, although the central bank warned that
currency weakness could drive up prices and push the bank off
its targets in the first quarter of next year.
China's yuan hit a near three-week high as the
central bank set its daily guidance rate firmer than some
investors had expected.
The Polish zloty and Hungarian forint
weakened a touch against the euro. Hungary's economic growth
slowed to an annual 2.2 percent in the third quarter, but this
was better than a 2 percent first estimate.