Emerging-market stocks rallied on Friday, driven by tech companies in Asia, following US data which boosted investor optimism that the world’s biggest economy will avoid a recession.
The MSCI gauge for developing world stocks climbed as much as 1.6%, extending their weekly gains to 2.8%, on track for the biggest since April. Taiwan Semiconductor Manufacturing Company, Samsung Electronics Co and Alibaba Group Holding are the biggest contributors to the rally.
Bulls took advantage of the selloff last month and in early August to increase or establish positions in many asset classes including emerging-market equities and bonds, according to Rajeev De Mello, chief investment officer at Gama Asset Management.
“However, we are close to the beginning of a US easing cycle with a 25 basis point September cut pretty much baked in,” he said. “Frequently, the actual start of the easing cycle has been accompanied by a market selloff as central banks are usually behind the curve.” De Mello sees the current rally levels as a chance to sell and opportunities in safer bonds.
The MSCI gauge for emerging currencies was little changed, with South Africa’s rand outperforming. The currency rose for a ninth day, the longest run since 2011. South African assets have rallied since a business-friendly coalition took power two months ago and the country’s economic data began improving. Inflation has fallen since February, relieving the pressure on the central bank to keep interest rates high.
The extra yield investors demand to own emerging-market sovereign dollar bonds rather than US Treasuries has fallen back to 400 basis points after widening earlier in August, according to JPMorgan Chase & Co. data.
Elsewhere, Israel’s dollar bonds posted the best performances in emerging markets as the country’s delegation arrived in Doha to meet with international mediators about a cease-fire in Gaza.
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