With the dollar at 13-month lows, emerging stocks headed for a second straight week of gains on Friday and yields on emerging currency bonds hovered at their lowest in 2-1/2-years as the sector enjoyed buoyant fund inflows.
Despite expectations that Western policymakers will soon start tightening monetary policy, including by clawing back the stimulus they have been pumping into markets for years, flows to emerging debt funds bounced to $1.5 billion in the past week after two weeks of outflow, JPMorgan data showed.
Emerging equity funds received $2.4 billion on confidence that developing economies can withstand gradual tightening from the U.S. Federal Reserve and European Central Bank.
MSCI's emerging equity index hovered just off 27-month highs, with year-to-date gains surpassing 23 percent.
Emerging sovereign dollar bond spreads over Treasuries were at one-month lows around 306 basis points while local debt yields averaged 6.14 percent on JPMorgan's GBI-EM index, having fallen almost half a percent over the week.
JPMorgan said its client survey of emerging market funds managing $1.1 trillion showed "risk-on", with funds cutting cash holdings and adding exposure to local bonds.
South African bonds extended gains after Thursday's surprise rate cut, with benchmark yields at one-month lows and helping the rand outperform other emerging currencies with a 0.5 percent rise.
On most currencies though, there were signs of caution. The lira rose 0.2 percent, while the rouble was flat and Asian currencies firmed only marginally despite the dollar's renewed weakness.
Citi analysts noted emerging currencies were on average trading at the highest levels in almost two years while total emerging market inflows were approaching levels seen just before the 2013 taper tantrum.
"While very strong inflows by themselves are no indication of an imminent turn, they do serve to increase volatility when the turn does arrive," Citi told clients, adding it was "lightly positioned" in emerging currencies.
"It's plausible some investors are sensing that valuation is becoming stretched. This is something which bears watching."
There is little sign that politics - Turkey's tussle with Germany over the detention of activists or Poland's stand off with the European Union - is affecting investor sentiment.
"Although we are concerned about the increasing political isolation of Warsaw within the EU, we remain constructive on Polish assets," said Societe Generale, which is also overweight the lira. "Continued inflows into (Polish bonds), robust economic data, and strong budget execution may further benefit (the) zloty."
Regional assets which gained after the ECB's dovish comments on Thursday eased back, with the zloty at one-week lows against the euro while the Hungarian forint slipped from eight-month highs.
For GRAPHIC on emerging market FX performance 2017, see http://tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2017, see http://tmsnrt.rs/2dZbdP5
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
on year
Morgan Stanley Emrg Mkt Indx 1060.35 +0.95 +0.09 +22.97
Czech Rep 1006.09 -2.60 -0.26 +9.17
Poland 2363.70 +5.20 +0.22 +21.34
Hungary 35507.87 +83.53 +0.24 +10.95
Romania 8382.83 +13.72 +0.16 +18.32
Greece 849.05 -5.49 -0.64 +31.91
Russia 1031.25 -7.29 -0.70 -10.51
South Africa 48143.37 +233.44 +0.49 +9.66
Turkey 06247.21 -488.35 -0.46 +35.97
China 3238.16 -6.71 -0.21 +4.33
India 31862.61 -41.79 -0.13 +19.67
Currencies Latest Prev Local Local
close currency currency
% change % change
in 2017
Czech Rep 26.08 26.05 -0.12 +3.55
Poland 4.23 4.21 -0.41 +4.10
Hungary 305.10 304.95 -0.05 +1.22
Romania 4.57 4.57 -0.12 -0.78
Serbia 120.27 120.44 +0.14 +2.56
Russia 58.92 58.89 -0.05 +3.97
Kazakhstan 325.08 325.93 +0.26 +2.64
Ukraine 25.90 25.89 -0.02 +4.27
South Africa 12.97 13.03 +0.53 +5.91
Kenya 103.69 103.75 +0.06 -1.27
Israel 3.56 3.55 -0.12 +8.24
Turkey 3.53 3.52 -0.27 -0.22
China 6.77 6.76 -0.14 +2.61
India 64.34 64.37 +0.05 +5.60
Brazil 3.12 3.12 -0.01 +4.24
Mexico 17.51 17.48 -0.17 +18.30
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 325 1 .04 7 90.70 1
All data taken from Reuters at 08:15 GMT. Currency percent change calculated from the daily U.S. close at 2130 GMT.
(This article has not been edited by DNA's editorial team and is auto-generated from an agency feed.)
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