Reuters/London

Emerging market equities rose to one-month highs yesterday and currencies mostly gained against the dollar after the Federal Reserve left US interest rates unchanged.
MSCI’s main emerging equity index was up 0.6% and on track for the biggest weekly rise since early April, with 3.8% gains. Emerging Asian shares rallied more than 1%
Fed Chair Janet Yellen justified the decision to keep rates on hold by saying the global outlook appeared less certain and recent falls in US stocks and a rise in the value of the dollar had been tightening US financial market conditions.
However, markets reckon the Fed will move later this year, probably in December. Market gains are also being capped by nervousness about Chinese and global growth.
“We are back to this ‘will they, won’t they’ guessing game,” said Viktor Szabo at Aberdeen Asset Management. “But the markets reacted quite positively.
There has been a quite significant rally in local bonds and currencies are OK.”
The dollar index fell almost one% after the Fed decision and extended losses on Friday, lifting major emerging market currencies.
The rand rose more than 1% against the dollar and the Turkish lira 0.4%, with both on track for weekly gains. The rouble fell more than 1% as oil prices came under pressure.
Analysts at Societe Generale said they would not advise clients to initiate short dollar positions against emerging currencies following the Fed decision.
“This is primarily because any EM appreciation will be self-limiting but also because investor attention is apt to focus on slowing China/EM growth, which was one factor underpinning the Fed decision to remain on hold,” they said in a note.
However, the Fed’s decision could provide emerging borrowers with a small window of opportunity to sell debt. Pakistan is starting a roadshow to meet investors on Friday and Iraq expects to price its bond early next week.
Weekly flow data from EPFR showed that emerging equity funds posted their 10th consecutive weekly outflow, the longest losing streak since early last year. Redemptions from emerging bond funds jumped on the back of Brazil’s recent downgrade.
Investors were also awaiting updates from ratings agencies on several key emerging markets: Fitch is scheduled to publish its assessment of Turkey and Ghana and Standard & Poor’s is set to offer reports on Nigeria and Hungary.