Emerging Assets Rise on Trump Dollar View Amid Citigroup Caution

(Bloomberg) -- Emerging stocks and currencies rallied for a second day after U.S. President-Elect Donald Trump said the dollar is too strong.

Developing-market stocks were within five points of erasing the losses they suffered after Trump’s November election victory. Currencies will still be challenged by the “likely” prospect of higher rates and since “Trump risks to trade don’t appear fully priced in,” Citigroup Inc. analysts including Dirk Willer and Kenneth Lam wrote in a note e-mailed on Tuesday.

"Signs of dollar weakness are likely to boost short-term sentiment for emerging markets," said Tony Hann, the head of equities at Blackfriars Asset Management in London. "But the market is really struggling to get a handle on Mr. Trump to try to work out if he means what he says and how much he’ll be able to implement."

Currencies

• The MSCI Emerging Markets Currency Index gained 0.2 percent as of 7:56 a.m. in New York
• South Korea’s won advanced 0.7 percent, to the highest level in more than a month.
• Malaysia’s ringgit rose 0.4 percent to the highest level in a month. The government said annual inflation was unchanged in December at 1.8 percent.
• The Russian ruble strengthened for a second day, adding 0.3 percent.
• Mexico’s peso was the biggest decliner in emerging markets, losing 0.9 percent.
• South Africa’s rand and Turkey’s lira each fell at least 0.5 percent.

Stocks

• MSCI’s gauge of stocks climbed 0.3 percent to 897.07, led by industrial companies.
• AirAsia Berhad surged 6.9 percent. The company said it may pay a dividend after selling its plane leasing unit.
• Kazakhstan’s KASE Index climbed to the highest level since 2011.
• Kuwait’s SE Price Index advanced 0.8 percent, extending its winning streak to an eleventh day. That’s the longest since 2014.

Bonds

• Turkey’s 2026 dollar-denominated bonds were poised to end three days of gains.
• The yield on Egypt’s 2025 dollar bonds added three basis points to 7.03 percent, paring its decline this year to 32 basis points. The International Monetary Fund is due to release details of the country’s $12 billion loan deal at 6 p.m. Cairo time.

Analysis

• Mexico’s peso is confined within trading range of 21.47 to 21.78 per dollar as the U.S. currency rebounds, Bloomberg strategist Davison Santana wrote.
• Emerging-market debt is attractive this year because most of the expected increase in U.S. interest rates has taken place, while higher commodity prices and a stronger U.S. economy bode well for economic growth in those countries, Stuart Culverhouse, chief economist at London-based Exotix Partners, said in a research note Wednesday. His top picks are bonds that mature in 2019 for Sri Lanka, Pakistan, Argentina and Kenya as well as Nigeria’s 2018s.
• Brown Brothers Harriman & Co. said South Korea’s won is among their top picks for the first quarter and recommends focusing on fundamentals as opposed to high carry trades.
• Bank of America said it expects the Czech central bank to end the limit on the currency’s appreciation earlier than a previous forecast of the third quarter.
• A pronounced slowdown in China’s economic growth by the second quarter appears certain, and set to “upend” emerging market asset valuations, Gene Frieda, a strategist at Pimco Europe, writes in blog post.
• External factors such as commodity prices may help solidify the South African rand’s rally, which overcame poor domestic economic performance in 2016, former trader Mark Cudmore said in an analysis for Bloomberg.

What to watch

• Brazil’s central bank will sell 12,000 currency swap contracts at auction. The intervention has helped the central bank improve liquidity in times of stress, Governor Ilan Goldfajn said in a press conference in Davos.
• Argentina’s bond road show continues in New York. The government says its seeking to raise as much as $7 billion at a debt sale this week.
• For data and events, see Asia Daybook, India Daybook, Taiwan Daybook, Middle East Daybook, Russia Daybook, Africa Daybook, South Africa Daybook.

To contact the reporter on this story: Ahmed A. Namatalla in Cairo at anamatalla@bloomberg.net. To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Srinivasan Sivabalan