China stimulus, US rate pause optimism lift EM stocks to 3-wk high

Sept 4 – Emerging market stocks gained on Monday after China stepped up stimulus measures to boost its faltering economy, while investors remained optimistic after a jump in US unemployment rate cemented expectations of a pause in rate hikes.

The MSCI’s emerging market index rose 1.1%, hitting a three-week high, carrying forward the optimism of a pause in rate hikes from last week after data showed the unemployment rate rose and wage growth slowed in the United States.

“I think Friday’s non-farm payrolls data were some golden numbers for emerging markets that showed US economy is growing, but the fear of the Fed having to jack up rates was not so present,” said Jakob Ekholdt Christensen, senior EM fixed income strategist at BankInvest.

“This is generating the positive momentum this morning, maybe together with some of the numbers out of China.”

China’s blue-chip index and Hong Kong’s Hang Seng Index  rose 1.5% and 2.5% respectively, with country’s top banks paving the way for further cuts in lending rates and sources saying Beijing plans further action including relaxing home-purchase restrictions.

Shares in China’s Country Garden jumped to their highest level since Aug. 10 after a deal with creditors for an extension on onshore debt payments worth 3.9 billion yuan ($537 million).

EM currencies were flat against a softer dollar with the yuan inching higher thanks to a firmer-than-expected official guidance as investors waited on key economic data due later this week for any currency directional clues.

The Turkish lira was steady against the dollar after annual consumer price inflation rose more-than-expected at 58.9% in August, rising for a second consecutive month in response to declines in the lira and recent tax hikes.

Israel’s shekel slipped 0.5% against the greenback as the central bank is expected to leave short-term interest rates unchanged this week but the rate hike cycle may not be over with the shekel hovering around a 3 1/2 year low.

In central and eastern Europe, Hungary’s forint climbed 0.3% against the euro after rating agency Moody’s on Friday affirmed the country’s Baa2 debt ratings while maintaining a stable outlook.

The Polish zloty rose 0.1% against the euro, while Czech crown was flat.

In other emerging markets, India’s Jio Infocomm, the telecom wing of Reliance Industries, is in talks to raise up to USD 2 billion in offshore loans to fund the purchase of 5G network gear from Ericsson, the Economic Times reported.

Markets in the United States were closed for a public holiday.

(Reporting by Shubham Batra in Bengaluru; Editing by Angus MacSwan)