INTERNATIONAL - Emerging stocks sailed to a fresh six-year high yesterday, but currencies cooled off after their recent rally as investors re-assessed the outlook for growth and inflation in China.
MSCI’s emerging market benchmark gained 0.4percent to hit the highest level since August 2011, having now risen 11 out of the past 12 sessions. Much of the momentum came from Asian bourses, with MSCI’s Asia ex-Japan adding 0.5percent to scale a decade high.
Markets took some inspiration from China’s central bank governor, saying the economy could grow 7percent in the second half of this year, accelerating from the first six months and defying widespread expectations for a slowdown. Meanwhile, data from Beijing saw producer price inflation in the world’s second largest economy unexpectedly accelerate in September to a six-month high as a construction boom showed no signs of abating, while a government crackdown on air pollution triggered fears of winter shortages and frenzied jumps in commodity prices.
“Chinese inflation is part of the picture,” said Per Hammarlund, chief emerging markets strategist at SEB. “Also the fact that higher commodity prices are not feeding into consumer prices yet - that suggests the Peoples Bank of China will not have to tighten monetary policy particularly fast either or slow down the economy too much.”
Underpinned by China, commodity prices climbed, with copper charging through the $7000 (R92775) a ton mark for the first time in three years, while steel-making inputs iron ore and coke raced higher. Oil prices jumped as Iraqi forces entered the oil city of Kirkuk, taking territory from Kurdish fighters and raising concerns over exports from Opec’s second-largest producer.
But higher commodity prices failed to cheer emerging market currencies, which had rallied last week on the dollar retreat. The rand weakened 0.5percent against the dollar, retreating from a three-week high hit on Friday when a court upheld corruption charges against President Jacob Zuma.
Mexico’s peso slipped 0.5percent, also under pressure from rising tensions over talks to determine the future of the North American Free Trade Agreement. The current round of talks - the fourth in a planned series of seven - looked set to be extended by two days as negotiators were running out of time to meet a year-end deadline.
Turkey’s lira weakened 0.3percent. However, Russia’s rouble took a breather after a four-day winning streak as firmer crude prices provided support.