London - Russian shares raced to record highs on Thursday, led by commodity prices and investors' new-found enthusiasm for emerging markets, while the broader emerging equity index rose to the highest in 5-1/2 months.
Rouble-denominated Moscow shares inched 0.4 percent higher , topping the eight-year highs touched earlier in the week, while the rouble hovered near five-month highs.
Dollar-denominated stocks were at a 10-month high.
“There is a big bid for emerging markets as a whole that Russia is benefiting from, but there is a Chinese debt-fuelled economic recovery and Russia is a good way to express that,” said Joseph Dayan, head of markets at BCS brokerage in London.
Dayan noted also that aside from firm oil, Russia's commodity-heavy bourse was being lifted by gains in base metals, with copper and iron ore prices at multi-month highs. Prices for gold and platinum, which Russia exports, have also risen.
Analysts said interest in Russia had also increased after the government ordered state-run companies to pay 50 percent of their profits on dividends this year. Citi for instance raised its recommendation on Gazprom to Buy; the shares hit 14-month highs.
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“Add to that low positioning on Russian assets, that means there is a technical shift and everyone is trying to buy back,” Dayan said.
Broader emerging equities bounced to the highest since November 2015 led by 1 percent-plus gains in Hong Kong and across Asia. However, Chinese mainland shares ceded early gains to close half a percent lower.
Some investors are sceptical the gains are sustainable.
“There is evidence of a new credit boom in China which is important for emerging markets but hard economic data for the main markets suggests very little is actually happening,” said Maarten-Jan Bakkum, a strategist at NN Investment Partners.
Most emerging currencies were flat to weaker, with the rand and lira pulling back from multi-month highs . Turkish 10-year yields rose off 10-month lows hit on Wednesday after the central bank cut one of the three rates it uses to set borrowing costs.
Analysts at TD Securities predicted more rate cuts due to political pressure and saw asset price gains as “a reflection largely of the current risk-on sentiment, which is prepared to give a high-yielder like the lira the benefit of the doubt”.
“This will result in the lira becoming increasingly exposed to any big reversal in risk appetite,” they added.
South African benchmark yields also rose off the four-month lows they touched after the country posted below-forecast inflation on Wednesday.
In emerging Europe, the Polish zloty retreated 0.4 percent versus the euro from one-month highs while the forint eased 0.2 percent off six-week highs. Local bond markets were awaiting a European Central Bank meeting which is expected to make the case for ultra-loose monetary policy.
REUTERS