LONDON, Dec 18 (Reuters) - Hope for progress on U.S. tax reform and higher crude prices helped emerging markets make a cheerful start on Monday with much focus on South Africa’s knife-edge leadership battle, which will set policy direction for Africa’s most industrialised nation.
MSCI’s emerging market index advanced 0.5 percent thanks to solid gains in Asia, with the benchmark having now risen 30 percent since the start of the year.
The good mood mirrored moves on major bourses, where sentiment was boosted by expectations that U.S. lawmakers will pass a long-awaited tax bill this week in a move that could lift corporate profits, trigger share buybacks and raise dividend payouts. Firmer oil prices also lent some support.
But the spotlight was firmly on South Africa where the rand strengthened 0.8 percent as delegates of the ruling ANC were chosing their new party leader – and likely next president of the country.
The race, which is too close to call, pitches Deputy President Cyril Ramaphosa against President Jacob Zuma’s ex-wife Nkosazana Dlamini-Zuma with results due later in the day.
Hopes that Ramaphosa – seen as business friendly - could win the contest have lifted the rand some 7 percent in the past four weeks against the dollar, making it one of the best performing emerging currencies in recent weeks.
“(Markets) want to see reforms happening - without reforms there is no point investing,” said Simon Quijano-Evans, emerging markets strategist at Legal & General Investment Management.
“The rand can rally further if (Ramaphosa) wins, based on the comments he comes out with – it would solidify the rally. (If he doesn’t win), there would be an initial sell off in the rand – then we need to see what any new leadership would come out with - but it would be a big disappointment.”
Yields in South Africa’s local benchmark sovereign bonds briefly dipped below 9 percent - their lowest level since the start of November.
Meanwhile in India, markets were breathing a sigh of relief after the ruling BJP party was set to win an election in Prime Minster Narendra Modi’s home state on Monday following a tight race, albeit with a reduced margin.
The outcome was seen as confirming that Modi’s popularity is intact, with stocks gaining 0.6 percent while the rupee traded a touch stronger against the dollar.
Currencies elsewhere also chalked up gains, with Russia’s rouble 0.4 percent stronger while Turkey’s lira gained 0.2 percent.
Data out of China showed that growth in new home prices kept up momentum in November thanks to gains in provincial centres and smaller cities, though this signalled policy-makers may need to step up curbs to rein in speculation amid fears of a property bubble.
In emerging Europe, Serbia’s dinar strengthened a touch against the euro after the country enjoyed a sovereign ratings upgrade late on Friday by both S&P Global Ratings and Fitch. Both agencies now rank the country at ‘BB’ - the second highest non-investment grade rating.
S&P said the upgrade reflected the country’s strong fiscal position and steady economic recovery.
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For RUSSIAN market report, see) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 1123.81 +5.31 +0.47 +30.33
Czech Rep 1065.41 +3.36 +0.32 +15.60
Poland 2441.32 +24.37 +1.01 +25.33
Hungary 38667.54 +10.17 +0.03 +20.82
Romania 7637.96 +34.65 +0.46 +7.80
Greece 776.96 +9.20 +1.20 +20.71
Russia 1153.14 +4.87 +0.42 +0.07
South Africa 50942.76 -10.47 -0.02 +16.04
Turkey 10100.94 +770.77 +0.70 +40.90
China 3268.33 +2.19 +0.07 +5.31
India 33645.22 +182.25 +0.54 +26.36
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 25.69 25.69 -0.03 +5.12
Poland 4.21 4.20 -0.21 +4.54
Hungary 313.94 314.28 +0.11 -1.63
Romania 4.63 4.62 -0.08 -1.97
Serbia 118.63 118.55 -0.07 +3.98
Russia 58.59 58.84 +0.43 +4.56
Kazakhstan 335.59 335.59 -0.00 -0.58
Ukraine 27.85 27.66 -0.70 -3.05
South Africa 12.99 13.14 +1.18 +5.74
Kenya 103.05 103.10 +0.05 -0.66
Israel 3.51 3.51 -0.02 +9.55
Turkey 3.85 3.86 +0.23 -8.40
China 6.62 6.61 -0.11 +4.94
India 64.20 64.07 -0.20 +5.83
Brazil 3.29 3.29 +0.00 -1.26
Mexico 19.10 19.13 +0.15 +8.47
Debt Index Strip Spd Chg %Rtn Index
Sov’gn Debt EMBIG 312 -2 .02 8 07.45 1
All data taken from Reuters at 09:55 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT.
Reporting by Karin Strohecker, additional reporting and graphic by Claire Milhench in London, additional reporting by Aleksandar Vasovic in Belgrade.