EMERGING MARKETS-Hong Kong leads charge as shares stage comeback

Emerging market shares broke a five-session losing streak on Thursday, led by tech stocks in Hong Kong, while a weaker dollar lifted developing world currencies, putting them on course for their best session in two weeks.

MSCI’s index of emerging market stocks jumped 1.7% and is set for its best session in more than seven weeks. Beijing’s promise to support the economy saw mainland China stocks rise almost 1%, while Hong Kong’s main index jumped 3.6%, marking its best session in four months.

Tech stocks in Hong Kong – heavyweights on the broader EM index – soared 6%, rising for the first time in six sessions. Positive sentiment carried over outside the continent with bourses in emerging Europe, Middle East and Africa rising between 0.7% and 1.9%.

Among currencies, MSCI’s index of developing world units rose 0.2%. The Chinese yuan recovered from fresh two-year lows, firming 0.2% against a weaker dollar, on the back of a higher fix by the central bank. The U.S. currency was on the back foot ahead of keenly awaited remarks on U.S. monetary policy from Federal Reserve Chair Jerome Powell on Friday at a central bankers’ symposium at Jackson Hole, Wyoming.

While data showing weakness in the U.S. economy saw investors scale back bets of another 75 basis points hike next month, Fed members have maintained a hawkish tone, leaving markets volatile. “For today’s session, seems like there’s a risk of a correction… positioning adjustments that may run through to Powell’s speech tomorrow,” said Chris Turner, global head of strategy and head of EMEA and LATAM Research at ING.

“We would have a further weakness in emerging market currencies after Jackson Hole,” he said citing challenges to growth both in Europe and China and forecasts for a stronger dollar through the rest of the year, sapping risk appetite. Investors will also be watching for a timeline for likely interest rate cuts by the Fed in 2023.

South Africa’s rand rose 0.7% against the greenback on Thursday, with hopes of continued central bank tightening rising after data on Wednesday showed a faster-than-expected rise in inflation in the country. Most central and eastern European currencies gained against the euro, with Hungary’s forint moving away from seven-week lows.

Turkey’s struggling lira was down 0.2%. The country’s weekly foreign exchange reserves data is due later in the day. Analysts last week had highlighted that rising reserves could have encouraged the central bank to cut the key interest rate despite surging inflation. For GRAPHIC on emerging market FX performance in 2022, see For GRAPHIC on MSCI emerging index performance in 2022, see https://tmsnrt.rs/2OusNdX

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