Emerging stocks at 9-1/2 month highs

REUTERS

A man stands outside an exchange bureau in Cairo.

The Egyptian pound slid to new record lows versus the dollar on Thursday and currency forwards priced in further sharp depreciation while emerging equities hovered at 9-1/2 month highs hit in the previous session.

A deal to avert the so-called fiscal cliff of US tax rises and spending cuts, fuelled a 2 percent rally on emerging stocks on Wednesday while dollar bond spreads over US Treasuries tightened 10 basis points. Markets were stable around these levels.

“Yesterday we saw a bit of euphoria due to the US deal but today the mood has become more cautious,” said Societe Generale analyst Gaelle Blanchard, noting that markets would focus on the tough talks still ahead for US politicians on spending cuts.

While mainland Chinese markets were shut, Hong Kong-listed shares powered to new 19-month highs as data affirmed recovery in the world's No. 2 economy. Chinese service sector growth accelerated in December at its fastest pace in four months while the manufacturing PMI held steady, matching November's seven-month high.

The Egyptian pound extended losses as the central bank held its fourth hard currency auction. The dollar sales, part of efforts to conserve hard currency reserves, have seen the pound fall 3 percent this week although it slid less on Thursday than in previous days.

Three-month non-deliverable forwards were quoted around 7.10 per dollar though trade was said to be very thin. Five-year credit default swaps were steady at August 2012 highs.

“Finally the central bank has admitted the situation is not sustainable. They are doing the right thing but it needs to go further to get any kind of competitiveness in the economy,” said Bartosz Pawlowski, a strategist at BNP Paribas.

“The biggest risk is a run on banks. They will do everything they can to avoid this, including restrictions on dollar purchases.”

Cairo stocks however have rallied 5.3 percent this week and rose 1.7 percent on Thursday.

Turkish stocks hit new record highs after data showed in-line inflation last month. But bonds fell, with traders attributing this to positioning before debt auctions. - Reuters