Emerging-market assets extended their recent gains Wednesday, shaking off a brief slump in currencies as traders dug into data on the US jobs market.
Currencies in developing markets, including Brazil’s real and South Africa’s rand, sank immediately following the report showing US payrolls rose in January by the most in more than a year. The real, rand and most peers reversed course later, with a gauge tracking emerging-market currencies ending the day up 0.2%, extending a winning streak to a fourth day.
The data looked strong initially, but “the underlying details show that the improvement is still very much concentrated, so not strong enough to materially impact market’s pricing of rate cut path,” said Ning Sun, a senior emerging-markets strategist at State Street Global Markets in Boston.
Following a volatile session, the Mexican peso was also up slightly by late afternoon. The currency’s rally hit a speed bump in its recent rally as US President Donald Trump was said to be mulling quitting the North American trade pact.
Meanwhile, emerging-market stocks hit fresh highs driven by a rotation out of US assets. Blockbuster profits at Asian chipmakers, the weak dollar and worries that US megacap tech stocks have become excessively expensive are underpinning the case for why more investors are adding cash to emerging-market assets. In equities, the MSCI benchmark rose 1% on Wednesday, building on a rally that’s already surpassed 11% this year.
At the TradeTech FX conference in Miami, money managers touted opportunities in emerging markets. Tom Nakamura, a portfolio manager at AGF Investments Inc., said a softer US currency and potential Fed interest-rate cuts offer a solid backdrop for EM
“We think there’s room for people to add to emerging market rates exposure,” Nakamura said. “They’re largely under-owned.”
Elsewhere, the Republic of Congo priced its first-ever international public bond offering, with the $700 million issuance marking the country’s return to international capital markets.
