LONDON Jan 2 Emerging equities surged to 9-1/2
month highs on Wednesday after U.S. lawmakers reached a deal to
avert the so-called fiscal cliff but Egyptian debt insurance
costs rose on fears of a currency crisis.
Markets across Asia and emerging Europe powered to fresh
highs on news that huge tax rises and spending cuts would not
now kick in. That likely staves off the risk of recession in the
world's No. 1 economy.
"The news from the United States provides a massive relief.
It was the black cloud on the horizon and that has now
dissipated," said Benoit Anne, head of EM research at Societe
Generale. "The green light is flashing for emerging markets."
With Chinese stocks at a six-month high and Hong Kong at
19-month peaks, MSCI's main emerging equity index
jumped 1.6 percent, its biggest one-day gain since
Equity and bond buying also triggered a powerful surge in
Asian currencies, forcing intervention by central banks from
South Korea and Singapore.
Emerging European bourses such as Warsaw, Istanbul and
Budapest surged over 1.5 percent , with
Istanbul and Johannesburg hitting new record highs.
Emerging European currencies failed to rally however, with
only the Polish zloty staying in positive territory against the
euro, as dismal manufacturing indices kept the pressure on the
forint and Czech crown .
The Egyptian pound fell to a new record low and
credit default swaps surged 27 basis points to 4-1/2 month highs
as fears of a currency crisis deepened.
Neil Shearing, an economist at Capital Economics, predicted
the pound at 7 per dollar by year-end from the current 6.39 - a
level the country's finance minister predicted on Tuesday it
would not reach.
"The most important issue for investors is how the pound
will get there, whether the central bank can manage it in a
transparent manner or will there be a messy devaluation,"
Egyptian dollar bonds however failed to succumb, with
spreads tightening 8 bps on the EMBI Plus emerging debt index
. The broader index saw spreads contract 8 bps to the
tightest since Aug 2011.