A mix of a weaker-than-expected US dollar in recent weeks and positive industrial data from China has boosted emerging markets to peak levels not seen in nearly three years.
The MSCI Emerging Markets Index – which measures equity market performance in some 26 emerging countries – rose 1 per cent Thursday, beating its record last year and registering the highest level since September 2014.
The MSCI Emerging Markets index comprises 10 per cent of world market capitalization.
In China, industrial profits are up 19 per cent at the same time that the country’s Q1 and Q2 GDP growth beat forecasts coming in at 6.9 per cent. The Chinese government had set a growth range of 6.5 to 6.9 per cent for 2017.
The benchmark Shanghai Composite Index continued its strong gains this month by rising 0.06 per cent to 3,249.78. Year to date it has grown 8.62 per cent.
The Hong Kong Hang Seng index reached its best performance in two years on Thursday, rising 0.7 per cent to 27,131.17.
Chinese market performance helped boost the rest of Asia with growth in South Korea, Japan, India and Australia.
In Brazil, the benchmark Ibovespa stock exchange was up 0.77 per cent at press time, buoyed by the Central Bank’s decision to cut the Selic interest rate down to 9.25 per cent – a significant move which indicates that inflation is being brought under control.
This is the lowest interest rate since November 2013 when Brazil’s economy began to show signs of slumping into recession.
While the Brazilian currency, real, dipped slightly, it was still 3.23 per cent up against the dollar year to date.
The Russian ruble has also done well against the dollar this year, having gained 12 per cent in strength since the same time last year.
The Russian economy has steadily rebalanced itself in the wake of US and EU sanctions over the Ukraine crisis.
“The Russian economy is projected to recover gradually in 2017 and 2018, in line with the April forecast,” the IMF said earlier this week. It is projecting real GDP growth of 1.4 per cent this year.
Emerging markets were also affected by remarks from the Federal Reserve on Wednesday, which stated that it would not raise interest rates but would begin to roll back its balance sheet in the months ahead.
The Fed also remarked that inflation rates in the US were “persistently” low and not edging toward its target rate of two per cent. This may mean that there will be pressure not to raise interest rates any time soon.
The BRICS Post with input from Agencies