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(AFX UK Focus)
2009-11-04 12:14
EMERGING MARKETS-Rebound on data, Fed hopes; rand shines |
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By Sujata Rao LONDON, Nov 4 (Reuters) - Emerging stocks rebounded 1.8 percent off four-week lows on Wednesday thanks to upbeat U.S. economic data and expectation a U.S. Federal Reserve meeting will reinstate its commitment to ultra-low interest rates. Upbeat U.S. factory orders data and firm vehicle sales numbers as well as a survey showing strong euro zone service sector expansion, helped counteract some of the bearishness caused by the previous session's banking sector woes. Emerging stocks snapped three loss-making sessions to bounce 1.8 percent with most major exchanges up 1-2 percent. But currencies firmed only marginally, the outperformer being the South African rand thanks to record high gold prices. "It's been very volatile in the past week, an effect of general risk aversion coming back," said Arvid Bohm, head of emerging equity strategy at SEB in Stockholm. He said the sell-off this week had made some emerging stocks more attractive, bringing in buyers. "Within emerging markets, the numbers we have seen from the macro perspective as well as earnings perspectives look very promising and what has happened this week is that at the same time as prices went down, earnings estimates moved up on the back of the reports," Bohm said. "So valuations have come down." Emerging stocks now trade at average forward price/earnings of around 12 -- a discount of almost 15 percent to developed stocks, he said. "Now everyone is focusing on what's happening in the United States, with the payrolls (data) ... and the Fed," Bohm added. The Federal Reserve is expected later in the day to pledge to hold rates exceptionally low for "an extended period", an expectation that saw the dollar slip back against other major currencies including the euro. Other helpful factors included a survey that showed the euro zone service sector expanding at the fastest rate in 22 months and a deal by U.S. Berkshire Hathaway that signalled corporate merger activity may be picking up. Emerging markets shrugged off a Fitch move to downgrade Ireland's rating to AA-. However, some trepidation remains amid signals from many central banks across emerging markets that policy tightening is on its way. Brazil's central bank governor Henrique Meirelles said on Tuesday that his country could reform currency laws and called for joint actioon to combat financial asset bubbles. "The market seems to remain in a more cautious mood, where a lot of good news has been priced in, and the market is now focusing more on possible further damage of the past recession on banks and on the possible damage that monetary tightening could inflict to asset prices," Calyon strategists told clients in a note.
SOUTH AFRICA The euro zone survey provided a helping hand to eastern European stocks which rebounded by over one percent in most cases -- 3 percent in Budapest. But currencies, with the exception of the Czech crown, lagged, with zloty and forint just under flat to the euro though the Czech crown was 0.6 percent up ahead of a central bank meeting which is expected to see rates held at 1.25 percent even though two MPC members had at the last meeting supported a cut to tame the currency. The Romanian leu was also flat ahead of a parliament vote on a new cabinet and traders said a negative vote had already been priced in. The currency was supported by the central bank's decision not to cut rates from 8 percent at its meeting this week. The day's outperformer was South Africa's rand which jumped 1 percent to the dollar rebounding from a 1.5 percent fall on Monday as prices for gold, South Africa's main exports surged to a record of almost $1,100 an ounce following news India had purchased 200 tonnes of gold from the IMF. "The weakness in the past few days was an unintended technical sell-off and now with commodities rallying it has come back up again," said Razia Khan, chief Africa economist at Standard Chartered in London. "Even with the South African foreign exchange authorities trying to stamp down the stronger rand, it would be difficult with stronger commodity prices," she added. Johannesburg's resource-heavy bourse rallied 1.03 percent while bond yields eased. The benchmark bond yield slipped to 8.4 percent, down 20 bps from recent highs. South African credit default swaps which have blown out in recent sessions after news of higher borrowing in years ahead, fell 8 bps to 146.5 bps. Emerging bond yield spreads fell 5 bps to 321 over U.S. Treasuries.
(additional reporting by Tiisetso Motsoeneng and Sebastian
Tong)
(sujata.rao@thomsonreuters.com; +44 207 542 6176; Reuters Messaging: sujata.rao.reuters.com@reuters.net)
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