(Bloomberg) — Emerging-market assets advanced Thursday, lifted by hopes of more stimulus from China and a pause in the US dollar following its election-led surge.
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Sentiment on emerging markets is calming after Wednesday’s selloff fueled by Donald Trump’s US election victory. That had pushed MSCI’s EM equity index into its steepest hit in a week, while 10 of 23 currencies tracked by Bloomberg posted losses of 1% or more against the greenback. But on Thursday, the MSCI gauge rose 0.7%, led by Asian stocks like Meituan, Tencent Holdings, and Taiwan Semiconductor Manufacturing Co. and China’s CSI 300 benchmark jumped 3%. MSCI’s EM currency gauge edged higher after Wednesday’s 0.6% slide.
While Trump’s victory has stirred up tariff threats for China and other developing economies, hopes are high that China will announce measures to offset the impact of potential US trade levies. Measures could come as soon as Friday when a Chinese legislative meeting wraps up.
“To mitigate rising US tariffs on the economy, we believe Beijing would likely scale-up fiscal stimulus,” Morgan Stanley strategists including Robin Xing told clients., adding that the possibility of more trade tensions could solidify the leadership’s resolve to implement measures.
In another positive, China’s October export data showing a rapid acceleration — the fastest since July 2022 — and beyond any economist’s forecast.
In currency markets, the offshore yuan bounced back from its sharpest plunge since 2019 as the dollar retreated 0.3% after its Thursday surge and Chinese state banks intervened to stabilize the yuan, according to traders. The Korean won and the Indonesian rupiah also firmed, while South Africa’s rand, highly sensitive to China’s fortunes, was Thursday’s standout, rising as much as 1.2%.
All eyes are now on the US Federal Reserve’s rate decision, with the benchmark rate likely to be cut by 25 basis points, following a half-point reduction in September. Yet the trajectory beyond today remains uncertain.
“A lot of what Trump is proposing is inflationary, more so in the US than internationally, which can disrupt the Fed’s easing cycle,” said Brendan McKenna, a strategist at Wells Fargo & Co. in New York. “A Fed cutting less aggressively should act as a tail-wind for the dollar,” he said.
Among emerging-market central banks, Czech policymakers will likely press on with an eighth consecutive interest-rate cut as weak economic growth for now trumps concerns about inflationary risks. Peruvian rate setters are expected to trim borrowing costs by a quarter point to 5%.
