LONDON: China’s yuan was the star performer among developing market currencies on Friday, heading for its best week since revaluation in 2005, while a bruised dollar sent emerging stocks to new three-year highs.
The Chinese currency has risen more than 7.5 per cent against the dollar this year, helped by signs the world’s second-largest economy is still expanding at a healthy pace.
It was up 0.4 per cent on Friday to 6.45 versus the dollar, its highest since March 2016, after data showing stronger-than-expected import growth in August reinforced optimism.
“A year ago people were worried about how long China’s hard currency reserves would last as they were burning through them to try and support the currency. And now we have had FX reserves rising for a few months,” said Julian Evans-Pritchard, China economist at Capital Economics.
“The scope that the yuan can appreciate is limited by how willing the PBOC is to let it appreciate,” Evans-Pritchard said, predicting the yuan would be at 6.4 to the dollar at the end of next year and 6.2 at the end of 2019.
Broad dollar weakness helped emerging assets after European Central Bank President Mario Draghi suggested the central bank may begin tapering its massive stimulus programme this autumn.
MSCI’s benchmark index of emerging stocks was up 0.3 per cent on Friday after touching its highest since 2014 earlier in the day.
It was on course for its eighth week of gains in nine.
There were strong gains in Russian shares and on the Hong Kong bourse on Friday, but stock markets in South Africa and Turkey slipped.
The Russian rouble fell around 0.3 per cent versus the dollar, pricing in expectations that the central bank will cut interest rates by as much as 50 basis points next week following a sharp slowdown in inflation.
Currencies like the rouble, Turkey’s lira and South Africa’s rand are all up over 0.5 per cent against the dollar this week, following falls in the greenback.
On fixed income markets, US bank Citi said they had turned bullish on Ukraine’s sovereign dollar bonds.
Kiev is preparing to return to international capital markets this month, having appointed BNP Paribas, Goldman Sachs and JPMorgan to lead a bond issue — its first since a 2015 debt restructuring. It has also launched a tender offer to holders of its dollar bonds maturing in 2019 and 2020 in a bid to extend its debt maturities.
In frontier markets, Mongolia’s dollar bonds came under pressure after parliament voted to oust Prime Minister Jargaltulga Erdenebat.
For GRAPHIC on emerging market FX performance 2017, see http://tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2017, see http://tmsnrt.rs/2dZbdP5 For CENTRAL EUROPE market report, see For TURKISH market report, see For RUSSIAN market report, see) (Reporting by Alexander Winning and Marc Jones; Graphic by Karin Strohecker)
