MSCI EM stocks index hits highest since early March
Fed hikes by 25 bps, but signals softer approach
C.banks in Hong Kong, Taiwan, Philippines raise rates
Turkish, South African consumer confidence falls
March 23 (Reuters) - Emerging market stocks rose on Thursday as the Federal Reserve signalled a pause in its interest rate hiking path, while higher-risk currencies bounced against the dollar’s longest losing streak in 2-1/2 years.
The MSCI’s index for EM equities touched its highest level in two weeks. Hong Kong stocks jumped more than 2%, while stocks in Turkey gained 0.8%.
The dollar weakened after the Fed did not use the words “ongoing increases”, in a sign it was on the verge of pausing further increases in borrowing costs after the collapse of two U.S. banks. It raised its benchmark funds rate by 25 basis points, as expected.
This helped spur a rally in higher-risk EM currencies, which have been pressured by higher interest rates in the developed world, that have strengthened currencies like the dollar and the euro.
“EM assets seem to have liked the Fed’s decision,” said William Jackson, chief emerging markets economist at Capital Economics.
“That said, if growth in DMs weakens as we expect, that’s likely to lead to more risk aversion, making it a challenging environment for EM currencies.”
The broader MSCI currencies index rose 0.8%, with South Africa’s rand up 0.8% and the Russian rouble gaining 0.7%.
Currencies in eastern and central Europe also took cues from the broader positive sentiment, overlooking a rise in the euro .
Developing markets have also had a bunch of central bank meetings of their own on the day. The Hong Kong Monetary Authority (HKMA) lifted its base rate charged through the overnight discount window by 25 basis points to 5.25%, just hours after the Fed. The Hong Kong dollar was flat.
The Philippine central bank stayed in an inflation-fighting mode, raising its benchmark interest rate by 25 basis points to 6.25%, while Taiwan’s central bank raised its policy rate on Thursday in a surprise move reflecting continued concerns about inflation.
The Philippine peso was marginally higher, while the Taiwan dollar was flat.
Brazil’s central bank cited rising inflation expectations as it kept interest rates unchanged for the fifth consecutive policy meeting on Wednesday.
Among data points, South Africa’s consumer confidence plunged in the first quarter, as the country continued to be plagued by severe power shortages and a cost-of-living crisis.
Turkey’s consumer confidence index fell 2.9% to 80.1 points in March, following the earthquakes that killed more than 48,000 in the country. A confidence level below 100 reflects a pessimistic outlook.
For GRAPHIC on emerging market FX performance in 2023, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2023, see tmsnrt.rs/2OusNdX
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For RUSSIAN market report, see (Reporting by Shreyashi Sanyal in Bengaluru. Editing by Jane Merriman)
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