Emerging market equities underwent a strong Wall Street transfer overnight, seeking to extend gains for a third straight session on Wednesday, as a developing market currency index hit a one-month high.
The increase in cases of the Delta variant of the coronavirus has kept sentiment in check, with China and Turkey among the countries reporting an increase in cases.
After the S&P 500 hit record highs, the MSCI Emerging Markets Equity (ME) Index jumped 1% as Chinese and Hong Kong stocks gained after the recent volatility, while stocks from Turkey, South Africa, Russia, Poland and Hungary all rose 0.3% to 0.7%.
The Russian benchmark is around 2.5% from all-time highs, while the broader emerging markets index is poised to make up for losses last week which were spurred by China’s growing crackdown on some of its business lines.
“The rising Delta variant Covid-19 cases are not yet dampening market expectations. But they could easily, ”said Robert Carnell, regional head of Asia-Pacific research at ING.
“The return of Covid to China is our greatest concern. Aggressive measures should bring it under control – the question is how quickly and at what economic cost. ”
Economists said China, the world’s second-largest economy, may need more monetary and fiscal easing to stop an economic slowdown. Data on Wednesday showed that growth in China’s service sector accelerated in July, but the pandemic threatens to undermine momentum.
As emerging market currencies rallied against a mixed dollar, their index jumped 0.3%.
The South African rand has hit a new high in three weeks, while the Russian ruble is close to more than a month, extending its gains in the eighth consecutive session – its longest winning streak since February. Data showed that Russia’s services PMI rose in July, but at its slowest pace since February.
Markets were awaiting details of Russia’s currency purchases for the coming month and two auctions of OFZ Treasury bonds.
As Turkey’s daily coronavirus case count rose to nearly 25,000, the highest in nearly three months, the lire fell behind Tuesday’s nearly two-month highs.
The Belarusian ruble lost 0.2% and was poised for its worst session in four weeks as political tensions weighed down. A wave of protests was sparked by last year’s elections which, according to the opposition, were rigged to keep President Alexander Lukashenko in power. Western powers have since imposed sanctions on the country.
The Hungarian forint moved closer to four-week highs against the euro, encouraged by retail sales data which showed an increase in June.