LONDON (Feb 6): Emerging equities rose to five-month highs on Monday after solid Chinese services sector data and disappointing US wage growth that raised hopes the US Federal Reserve would not hike rates as quickly as previously feared.
MSCI's benchmark emerging equity index rose 0.7% to its highest level since early-September after China's services sector showed an increase in orders and companies hiring staff at the fastest pace in 20 months.
Emerging currencies broadly firmed, with many Asian currencies at multi-month highs versus the subdued dollar and even the beaten-down Turkish lira rising 0.3%
Sentiment was also supported by Friday's US non-farm payrolls which showed a greater-than-expected rise in jobs growth, although wage growth was disappointing. This suggested inflation would not reach a rate that would prompt the US central bank to raise interest rates soon.
"That provided a shot in the arm for EM risk appetite," said Per Hammarlund, chief emerging markets strategist at SEB. "If the FOMC won't hike as fast as previously thought, that's good for higher-yielding emerging markets."
He added that the Chinese data had boosted commodity prices, another supportive factor for emerging markets.
Asian markets set the trend with mainland Chinese shares up 0.5%, Hong Kong stocks up 0.9% and Taiwan shares climbing 0.9% to their highest level since June 2015.
Indian shares also climbed to a four-month high as investors bet the central bank would ease interest rates on Wednesday.
Turkish stocks however retreated 0.5% after initially hitting two-year highs, dragged down by Halkbank and Turkish Airlines, which fell 1% and 0.4% respectively after the government removed them from a privatisation programme.
It transferred its stakes in several firms to its sovereign wealth fund.
Bucharest stocks also rose 0.6% to their highest level since August 2015 and Romania's leu firmed 0.2% against the euro after Romania's government, under pressure from mass protests, annulled a decree that would have decriminalised some graft offences.
The leu hit a seven-month low last week. Romania's central bank will meet on Tuesday and is expected to keep rates on hold at 1.75%.
On bond markets, Nigeria's pending US$1 billion Eurobond sale, its first in 3½ years hangs in balance after President Muhammadu Buhari asked parliament to extend his medical leave, deepening suspicions that his health is worse than thought.
Buhari's extended leave could further erode confidence in his administration, already under pressure from investors to let Nigeria's currency float freely to try to revive an oil-driven economy now is at its weakest in 25 years.