Emerging stocks were set to end with the biggest weekly gains since March, buoyed by policy-easing prospects at home and abroad although many markets retreated after a deadly militant attack in France soured the mood.
A gunman at the wheel of a heavy truck ploughed into Bastille Day holiday crowds in the French Riviera city of Nice late on Thursday, killing at least 84 people in what President Francois Hollande called a terrorist act.
The attack dampened European markets.
The impact was partly offset by Chinese data showing quarterly growth at a robust 6.7%, pushing currencies such as the Taiwanese dollar and Korean won to hit new multi-month highs. Chinese state banks’ dollar sales helped keep the yuan flat over the week.
“The risk-on tone across global markets continues, conspiring to push EM currencies stronger.
For now, there is nothing standing in the way of further gains over the short term as the lack of negative factors should keep investors hunting for yield,” Societe Generale analysts said in a note.
MSCI’s emerging equity index rose 0.25% for its seventh day of gains, and is up almost 5% this week.
Emerging bonds have likewise rallied strongly, with dollar bonds’ average premia over US Treasuries declining by around 25 bps over the week, pushing spreads to the lowest in over a year.
With central banks in Japan and Europe expected to ease policy further and many emerging markets also inching towards rate cuts, local currency bond yields have tumbled to the lowest in over a year.
However, many emerging assets in Europe pulled off recent highs yesterday, with the rand and rouble down more than half a per cent versus the dollar and the Turkish lira falling 0.3%.
Aside from the Nice events, some of the pullback was attributed to the Bank of England’s decision not to cut interest rates on Thursday, contrary to expectations.
The zloty was flat against the euro before a Fitch decision that could lower the outlook on Poland’s A- rating to negative.
Polish bond yields stood more than 10 bps higher than post-Brexit lows.
Hungarian bonds were likewise flat but hovered near record lows after authorities acted on Tuesday to push cash out of short-dated bank deposits into bond markets and the economy.
Ten-year yields are down more than 10 bps this week to around 2.84%.
“Hungary is possibly the most reactive central bank in the region,” Citi analysts said in a note, adding that this week’s measures were “another important step towards central bank efforts to engineer a much lower front-end (of yield curve), and finally a weaker forint”.
In other bond news, Macedonia pulled a euro issue it had already started marketing after an opposition party member questioned the legality of the deal.