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High-yielding rand gains

Emerging market assets rise as pace of new coronavirus infections slows.

Emerging market assets rose on Tuesday, as demand for riskier assets picked up due to a slowdown in the number of new coronavirus cases, but analysts warned the optimism could be overstated.

China recorded a daily drop in new cases, offering a glimmer of hope that the epidemic might be peaking. It has so far killed more than 1 000 people, with concerns growing over how damaging its impact would be on the world’s second largest economy.

China’s top medical adviser on the outbreak said the epidemic may peak in February and then plateau before easing.

“It seems that markets have assumed the worst is over with regards to the coronavirus,” said Piotr Matys, emerging markets FX strategist at Rabobank.

“But optimism that the virus is contained is overdone because we haven’t seen concrete evidence, so we maintain a cautious view.”

Still, MSCI’s index for emerging markets stocks rose 0.7%, following two days of declines, while its index for currencies gained 0.2%.

Among currencies, South Africa‘s rand firmed 0.5% versus the dollar as investors loaded up on high-yielding currencies. Markets will also be watching out for President Cyril Ramaphosa’s annual speech at the opening of parliament on Thursday for clarity on policy and reform.

“The rand is one the best indicators of market sentiments, it is a high yielder. The rand leading gains today is an indication of risk appetite returning to emerging markets,” Matys said.

The yield-seeking strategy also pushed the greenback to a four-month high against its rivals.

Russia’s rouble also firmed, keeping pace with rising oil prices and other emerging-market currencies.

Investors also await U.S. Federal Reserve Chair Jerome Powell’s first of the two updates a year to Congress on Tuesday, where he is likely to sound fairly upbeat about the outlook for U.S. economic growth.

Currencies in central and eastern Europe – Hungary , Romania and the Czech Republic were relatively unchanged against the euro.

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