The MSCI gauge for developing world stocks advanced as much as 1.2%, fueled by Asian tech companies and a continued rebound in equity indexes in Mexico and India.
A gauge for currencies rose as much as 0.16% following a widely expected rate cut from the European monetary authority as traders geared up for Friday’s US payrolls report.
“The reaction to the ECB decision has been muted. The rate cut was well telegraphed,” said Anders Faergemann, a senior money manager at Pinebridge Investments. “EM investors are still navigating idiosyncratic factors around the election outcomes in Mexico and South Africa.”
Friday’s non-farm payroll report will be more important in setting the tone for the weeks around, he added, which may pave the way for further US dollar weakness and renewed appetite for EM currencies.
Election Impact
The Mexican peso steadied on Thursday, dipping 0.2%, after taking a big hit in the wake of a huge victory by Claudia Sheinbaum and her Morena Party. The result was seen as a negative as it increases the chances congress will pursue less market friendly measures. The benchmark stock index rose as much as 2.4%, erasing losses from earlier in the week.
“The movements of the MXN will not be volatility free for the remainder of the week as the final numbers of the elections are announced, and with it, the final composition of both chambers,” said Luis Gonzali, money manager at Franklin Templeton.
In South Africa, the rand pared losses as South Africa’s biggest labor union federation pushed the African National Congress to consider seeking support from the main opposition party to enable it to stay in power.
“EM has bounced all over the place,” said Juan Perez, director of trading at Monex USA. “Political anxiety is high in Latin America, but economic figures are not painting a dire picture. Rather, beliefs about what could come in the long-term have scared investors.”
Meanwhile, Indian stocks rallied for a second day, recovering from a $386 billion wipeout, after investors realized that they had miscalculated the scope of Prime Minister Narendra Modi’s election victory. The NSE Nifty 50 Index on Thursday rose, as the benchmark continued to recoup losses after the election-driven rout.
India’s central bank will likely keep interest rates on hold well into this year. The Reserve Bank of India will probably leave the benchmark rate at 6.5% for an eighth-straight meeting on Friday, according to all 34 economists polled by Bloomberg.
