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EMERGING MARKETS-Stocks resume climb on view Fed will stay loose
August 22, 2014 / 9:21 AM / 3 years ago

EMERGING MARKETS-Stocks resume climb on view Fed will stay loose

(There will be no EMERGING MARKETS report from London on Aug 25, a UK holiday)

By Chris Vellacott

LONDON, Aug 22 (Reuters) - Emerging stocks resumed their upward trajectory on Friday, hitting three-year highs and heading for a gain of more than 1 percent for the week on the back of expectations that monetary policy in the United States will stay loose for now.

The MSCI emerging index rose 0.4 percent on hopes that Federal Reserve Chair Janet Yellen will signal at an annual gathering of central bankers later on Friday in Jackson Hole, Wyoming, that interest rates will not rise just yet.

“Today everyone is waiting to hear what Yellen might say, expecting her to modify tightening expectations a little bit,” said Per Hammarlund, chief emerging markets strategist at SEB.

Rising rates in the United States could prompt heavy flows of investment out of emerging markets where investors have flocked in search of higher returns.

Meanwhile, a 10-day rally in Russian shares driven partly by hopes for no further escalation in the Ukraine crisis ran out of steam. The dollar-denominated RTS index was down 1.4 percent and its rouble-based peer MICEX lost 1.3 percent.

The rouble was 0.32 percent weaker against the dollar following strong gains in the previous session that were prompted by hopes that a bilateral meeting between Russia and Ukraine next week will ease tensions between the countries.

Russia’s President Vladimir Putin and Ukrainian President Petro Poroshenko are due to meet on Aug. 26 in Minsk to discuss the situation in eastern Ukraine, where fighting is raging between pro-Russian rebels and government forces. Ukraine’s hryvnia fell nearly 2 percent to a new record low.

In Turkey the lira advanced 0.2 percent against the dollar and shares were 0.4 percent higher as investors awaited clarity on who will be running the economy in the country’s new government.

Turkish president-elect Tayyip Erdogan named Foreign Minister Ahmet Davutoglu as his future prime minister on Thursday. Erdogan’s AK Party was set to approve his nomination at a congress on August 27.

“(Davutoglu) is largely perceived to be a loyal ally of Erdogan. It’s very likely we will see the same kind of policy continuing, with pressure on the central bank to lower interest rates. That will make the lira more vulnerable to changes in U.S. monetary policy, when they come,” Hammarlund said.

The Turkish economy is dependent on foreign capital to finance a current account deficit so a hawkish signal from the Fed could prompt heavy selling of Turkish assets.

In South Africa, the rand held on to gains from the previous session with a 0.1 percent gain on the dollar with investors waiting for clarity from the Fed.

Ratings agency Standard & Poor’s said on Thursday it was not looking to downgrade South African banks after a Moody’s cut earlier in the week.

Bankers citing data from EPFR Global said investors put more money into emerging market funds in the week to August 20, with inflows amounting to 0.34 percent of assets under management.

Renaissance Capital said in a note that much of the new money had flowed to Asia-focused funds - which saw new money equivalent to 0.5 percent of assets - while Latin America and Europe, the Middle East and Africa saw outflows.

Argentina’s key dollar discount bond due 2033 fell 2 cents to 78 cents on the dollar, extending losses from earlier this week, after U.S. District Judge Thomas Griesa on Thursday called a proposed debt restructuring plan by Argentina “illegal”.

For GRAPHIC on emerging market FX performance 2014, see link.reuters.com/jus35t

For GRAPHIC on MSCI emerging index performance 2014, see link.reuters.com/weh36s

For GRAPHIC on MSCI emerging Europe performance 2014, see link.reuters.com/jun28s

For GRAPHIC on MSCI frontier index performance 2014, see link.reuters.com/zyh97s

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see ) (Additional reporting by Carolyn Cohn; Editing by Gareth Jones)

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