Emerging-market stocks and currencies rose Tuesday as Treasury yields and oil prices eased, while Brazilian assets remain in favor after a conservative sweep in the first round of the presidential election .
MSCI’s emerging market stock index rose for a second straight day, getting a boost from a weaker dollar, a rebound in bonds and Brent’s slide below $100 a barrel. A currency gauge also edged higher, with the rand gaining 0.8% against the greenback. South African markets also enjoyed a boost from a heavily subscribed bond auction.
Eastern European currencies benefited from an easing in French risk premia. The Hungarian forint added 0.6% versus the euro after deputy central bank governor Zoltan Kurali said euro adoption could happen as early as 2031. The Czech koruna erased an early loss to gain about 0.2% to the euro after an acceleration in inflation · bolstered arguments for an interest-rate increase.
Emerging-market investors’ focus is firmly on Brazil, where Monday’s post-election rally is expected to extend until the Oct. 25 second-round vote. The real which rallied to a five-month high on Monday, will gain further, Societe Generale analysts said, advising short dollar and euro positions against the Brazilian currency.
Elias Haddad at Brown Brothers Harriman said the first-round result has handed “momentum” to challenger, Flavio Bolsonaro, heading into the runoff.
“Bolsonaro’s plan for faster fiscal repair and lower taxes would add to the positive Brazil asset outlook, already underpinned by Brazil’s strategic exposure to commodities linked to energy, AI, and defense,” he said.
Read: Brazil Assets Surge as Investor Favorite Bolsonaro Leads in Race
The mood more broadly remains cautious, however, with Treasury yields near multi-decade highs, fears of a French crisis boosting the dollar and the unresolved Middle East crisis keeping oil prices near $100.
Policymakers are being forced into action. India, for instance, is expected to raise rates this week for the first time in nearly four years. In Chile, the government pledged to sell dollars after the peso’s 4% slide in the past month. Zambia’s kwacha , a strong year-to-date performer, fell for the sixth day as energy importers clamored for dollars.
Emerging-market investors have “gotten burned” by a range of factors in recent weeks, according to Phoenix Kalen, head of EM strategy at Societe Generale.
“Investors may be thinking about de-risking their portfolios and staying quite selective, which suggests an environment where the majority of EM foreign-exchange spot returns will be negative,” said Kalen, who expects currencies from Brazil, Colombia, India and Indonesia to be among the outperformers over the coming months.
French fiscal concerns could also emerge as a headwind. Strategists at Barclays Plc advised clients to sell emerging debt denominated in euros in favor of dollar-denominated bonds.
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