South Africa’s rand snapped a three-day losing streak on Wednesday as inflation data was in line with expectations, while emerging market stocks rose after breaking a 10-day rally in the previous session.
While the dollar gained against the yen following the Bank of Japan’s decision to keep monetary policy easy, the greenback was still weak broadly.
Optimism around China’s border reopening and hopes for smaller interest rate hikes from the U.S. Federal Reserve have spurred risk-on sentiment lately.
MSCI’s index of emerging market currencies was back in positive territory after a two-day pause in its 15-day rally, while its stocks counterpart also resumed its advance, up 0.3%.
South Africa’s rand rose 0.6%, after losing 1.7% over the last three sessions.
Data showed South Africa’s headline consumer inflation slowed to 7.2% year-on-year in December from 7.4% in November, in line with analysts’ estimates. Investors will now focus on the South African Reserve Bank’s policy meeting next week.
“We think that a slowdown in the tightening cycle is nailed on. We expect a 50 basis points increase in the benchmark rate, to 7.50%, next week,” said Virág Fórizs, EM economist at Capital Economics.
The central bank has raised interest rates in its last seven monetary policy meetings, increasing them by 75 bps in its latest meet.
Among emerging market stocks, NetEase jumped 6.5%, while Tencent climbed 1.7% after China’s video games regulator granted the first gaming licenses in 2023, further easing an industry crackdown.
In less than three weeks of 2023, foreign buying of Chinese stocks has exceeded last year’s total, while foreign investors increased their holdings in China’s onshore bonds in December after a record 10 months of outflows, official data showed on Wednesday.
“We recently lifted China to most preferred in our Asia strategy,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
Hong Kong’s leader John Lee said on Wednesday he aims to lift all COVID-19 restrictions within this year. The Hang Seng index rose 0.5%.
Investors, however, are bracing for a spike in COVID infections as Chinese citizens travel for the long Lunar New Year holidays. For GRAPHIC on emerging market FX performance in 2023, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2023, see https://tmsnrt.rs/2OusNdX
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(Reporting by Susan Mathew in Bengaluru; Editing by Vinay Dwivedi)