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EM-Stocks cheer Evergrande jump; Turkey, SA cenbanks eyed

Investors now await further news on $83.5 million in interest payments on an offshore bond due on Thursday.
Image: Qilai Shen/Bloomberg

Broad-based gains on some relief over Evergrande lifted emerging market stocks on Thursday, while monetary policy decisions from Turkey and South Africa later in the day are among several central bank notices likely to drive market moves this week.

Chinese property developer Evergrande, beleaguered by $305 billion in debt, surged 16% following a day’s holiday after its Hengda Real Estate Group unit said it had “resolved” a coupon payment on an onshore bond, and its chairman reassured retail investors.

Investors now await further news on $83.5 million in interest payments on an offshore bond due on Thursday.

Easing fears further, US Federal Reserve Chair Jerome Powell said he did not see Evergrande’s issues spilling over into the United States. The Fed signalled tapering could start as soon as November and last until mid-2022. The dollar weakened.

“Risky assets loved the (Fed’s) statement and updated projections as the Fed has well telegraphed that they were nearing a taper announcement and continue to show they are in no rush to deliver interest rate hikes,” said Edward Moya, senior market analyst at OANDA.

MSCI’s index of EM shares rose 0.6%, extending gains for a third straight session, with Hong Kong stocks rising 1% to lift off near one-month lows.

An index of Asian shares excluding Japan was set for its best session in two weeks, while those in Russia , South Africa and Hungary rose between 0.4% and 1%.

Shortly after the Fed’s decision, Brazil’s central bank hiked its key interest rate by 100 basis points as expected to 6.25% and flagged another increase later this year in an aggressive battle against rising inflation.

Growing expectations of tightening by the Fed has also contributed to most EM central banks adopting hawkish tones this year, as they seek to keep interest rate differentials attractive for carry trades.

On Thursday however Turkey’s central bank is expected to hold rates, resisting pressure from President Tayyip Erdogan to cut in a surging inflation environment.

“If the (bank) remains on hold today, we believe investors should price in the risk of a potential conflict between President Erdogan and the central bank,” said Berna Bayazitoglu, an analyst at Credit Suisse.

Turkey’s lira was steady ahead of the decision at 1100 GMT, having fallen some 17% since the ouster of hawkish central bank governor Naci Agbal in March.

As inflation remains benign in South Africa with the economy on track to contract this quarter, the rate is expected to stay at a record low of 3.50% with hikes expected only next year.

The rand was up 0.4% ahead of the monetary policy decision at 1300 GMT.

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