Emerging-Market Assets Buoyed by Week of Global Stimulus Moves

(Bloomberg) -- Developing-world stocks extended their week of gains on Friday as the Federal Reserves rate cut boosted appetite for risky assets, followed by monetary policy action across some of the biggest emerging markets. 

The MSCI gauge for EM stocks added 0.7%, extending weekly gains to around 2.3%, the best performance in more than a month. The gauge for currencies was little changed, still hovering around an all-time-high. The Indonesian rupiah outperformed, while currencies from Mexico, South Korea and South Africa led declines on the day. 

“The Fed has delivered a boost to EM and broader risk assets, and we expect further gains in the near term,” Barclays strategists including Andreas Kolbe and Sebastian Vargas wrote in note. “However, concerns about global growth are unlikely to dissipate entirely, while (geo)politics could further complicate the outlook for exposed economies and assets.” 

Lira Bonds

The Federal Reserve’s 50 basis-point rate cut this week has boosted confidence that it will be able to engineer a soft landing for the American economy. Projections from Fed policymakers reflect a potential further 1.5 percentage points of cuts by the end of next year.

“Fed policy action is likely to remain supportive of risky assets, including EM,” strategists at Citigroup wrote. 

Turkish lira bonds continued to rise on Friday after the central bank’s statement which many economists viewed as dovish. Banking stocks in the Philippines rallied after the central bank said it will slash the reserve requirement ratio for larger banks, injecting about 250 billion pesos ($4.5 billion) into the economy.

Also this week, South Africa’s central bank cut interest rates for the first time in four years and signaled a more optimistic outlook for inflation.

At the same time, Brazilian markets rallied on Thursday as the central bank’s decision to raise interest rates — and a statement viewed as hawkish — signaled its commitment to getting inflation back to target. 

While emerging-market currencies have broadly benefited from a softer US dollar this quarter, African currencies have bucked the trend, weighed down by local economic challenges. Out of the 10 worst-performing currencies globally, five are from Africa, including the Zambian kwacha, the Angolan kwanza and the Nigerian naira, according to data compiled by Bloomberg.

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