Emerging market stocks sailed to fresh six-year highs yesterday, buoyed by optimism over global growth and company earnings. Currencies from emerging economies benefited from the dollar stalling on concerns over U.S. President Donald Trump's tax plan. MSCI's emerging market index added 0.4 percent in its second straight day of gains, trading at its highest level since August 2011 as Asian heavyweights tracked the global rally that saw Wall Street scaling all-time highs on Tuesday.
South Korea's KOSPI index added 1 percent to close at record highs as expectations for robust third-quarter earnings from corporates such as Samsung Electronics boosted market sentiment. Taiwan stocks matched those gains. Investors risk appetite was whetted after the International Monetary Fund (IMF) raised its outlook for the global economy, indicating the current broad-based global economic upswing will likely be sustained this year and next.
The IMF upgraded its global growth forecast for 2017 by 0.1 percentage points to 3.6 percent and to 3.7 percent for 2018, driven by a pickup in trade, investment and consumer confidence.
Turkey got one of the biggest upgrades after a stronger-than expected performance at the start of the year. "The IMF doubled its 2017 GDP growth forecast to 5.1 percent - raises 2018 to 3.5 percent," Simon Quijano-Evans, emerging market strategist at Legal & General Investment Management wrote in a note to clients. "That should remove a lot of the doubts." Turkey's lira strengthened 0.9 percent against the dollar.
But currencies broadly firmed against the weaker dollar as Trump's escalating war of words with Republican Senator Bob Corker raised concerns about the administration's ability to pass promised reforms.
South Africa's rand strengthened 1 percent in a second day of gains while Russia's rouble edged 0.1 percent higher. However, China's yuan eased against the dollary, as corporate demand for the greenback outweighed a much stronger official fix. Not everyone is convinced the sector's difficulties are past. Emerging local debt yields rose on Monday to the highest since August though they have clawed back some gains since.
"Currencies ... have been a bit wobbly since the end of last week though the dollar is retreating a bit now," said Rob Drijkoningen, head of emerging market debt at Neuberger Berman. He noted the expectations of tax reform and a December rate rise had boosted U.S. Treasury yields. "Then there is also quite high positioning in EM by hedge funds and short-term players so all that is coming together to add to pressure on EM," Drijkoningen added.