March 31 (Reuters) – Emerging market stocks rose for a fourth straight session on Friday and were on track for their second quarterly gain in a row, as fears of a banking crisis gradually faded away and focus shifted to key inflation data from the U.S. and eurozone.
The MSCI’s index for EM stocks .MSCIEF was last up 0.5%, eying a quarterly rise of nearly 4%, which was smaller than the 9% gain made in the last three months of 2022 as fears of higher interest rates and slowdown worries tempered optimism around developing world assets that was at play in the final months of last year.
Currencies were also set for a second consecutive quarterly rise, with the MSCI’s EMFX index .MIEM00000CUS up almost 2% in the first three months of the year.
Developing world currencies, including the Mexican peso MXN=, South Africa’s rand ZAR= and the Czech crown EURCZK=, were among the top performers for the quarter, given their high yielding nature.
Mark Haefelem, chief investment officer at UBS Global Wealth Management, recommends long positions on the emerging market carry basket, noting that the basket, which includes the peso, rand and crown, “allows investors to benefit from the improved outlook for emerging markets and their high nominal interest rate carry.”
A carry trade is a trading strategy that involves borrowing at a low interest rate and investing in an asset that provides a higher rate of return.
Focus later in the day will shift to the dollar as data is expected to show U.S. consumer prices, excluding volatile food and fuel prices, remained unchanged in February from a month ago.
Inflation in the euro zone dropped by the most on record in March but growth in core prices accelerated, data showed, likely strengthening the case for more interest rate hikes by the European Central Bank.
The rand firmed against the dollar, extending gains after the South African Reserve Bank raised its main interest rate by a higher-than-forecast 50 basis points to 7.75% on Thursday in a surprise move.
The Russian rouble RUBUTSTN=MCX was steady against the dollar, but pulled back from a more than 11-month low against the euro RURRUBTN=MCX.
The Mexican peso MXN= eyed gains for another day after the country’s central bank hiked the benchmark interest rate by 25 basis points to 11.25% on Thursday, but took a more dovish tone on the future of rate moves.
Separately, EM local currency debt.JGEGDCM looked set for quarterly returns of 4.8%, outstripping U.S. 10-year Treasuries. Top of the pack are Colombia, Hungary and Chile, with gains of nearly 10% or higher, and they are seen broadly done with their interest rate hiking cycles.
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 Shreyashi Sanyal in Bengaluru; Editing by Subhranshu Sahu)
