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Wednesday, July 6, 2022

China rate move, geopolitics lift emerging stocks

China rate move, geopolitics lift emerging stocksLONDON: China’s surprise central bank move, signs of easing geopolitical tensions and progress in US-North Korea relations helped emerging stocks climb higher on Wednesday though currencies fared more mixed.

MSCI’s emerging market index added 0.3 percent in a second day of gains with much of the momentum coming from Asian bourses where heavyweight South Korea ended the day 1 percent higher while Hong Kong and mainland China bourses were not far behind.

A number of factors contributed to the upbeat mood:

China’s central bank unexpectedly cut the ratio of cash banks hold as reserves though attached conditions on how funds would have to be used, freeing up lending for small firms even though this stopped short of broad monetary easing.

“We’ve had the perception for a while that the PBOC was in a tightening mode and then there was that relaxation of reserves which is a measure in the opposite direction as it loosens monetary policy,” said Cristian Maggio at TD Securities.

“That shows you how careful the PBOC is to strike a balance between avoiding a continuation of the credit bonanza and providing a minimum support to the economy.”

Adding to the upbeat mood was news that US Secretary of State nominee Mike Pompeo made a secret visit to North Korea and met with North Korean leader Kim Jong Un to discuss a planned summit with US President Donald Trump.

A lack of signs from Washington that imminent further sanctions could be slapped on Moscow or trade tensions with China were escalating helped nurture investors’ risk appetite.

Currencies painted a more mixed picture.

China’s yuan softened for a third straight day following the reserve ratio requirement cut, easing 0.1 percent.

The Hong Kong dollar hovered a sliver above the lower end of the trading range after the monetary authority intervened once again overnight when the currency hit the lower band threshold at 7.5 to the dollar repeatedly in US trading.

But South Africa’s rand bounced back from earlier losses to strengthen 0.2 percent after inflation data showed a slowdown to 3.8 percent year-on-year in March, with analysts having expected prices to quicken.

Copyright Reuters, 2018

Source: Brecorder

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