Emerging stocks rise to five-day highs, shrug off Italy concerns

In this October 25, 2016, photo, visitors view the new Yangon Stock Exchange board at the exchange headquarters in Yangon, Myanmar. AP Photo/Denis Gray

In this October 25, 2016, photo, visitors view the new Yangon Stock Exchange board at the exchange headquarters in Yangon, Myanmar. AP Photo/Denis Gray

Published Dec 6, 2016

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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.

REUTERS

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