Emerging markets stocks bolstered by stimulus talks

Emerging-market stocks gained Tuesday as shares in Hong Kong rebounded from a 14-month low on speculation of a new stimulus package in China, while currencies pared earlier losses.

MSCI’s index for developing-nation equities rose as much as 0.9% before trimming gains to close 0.6% higher. The equivalent gauge for emerging currencies rose 0.1%, with South Africa’s rand and the Brazilian real leading the advance. The Mexican peso was the worst performer among major currencies as New Hampshire primary results may show Donald Trump taking an incontestable lead. 

The decision by the Bank of Japan to keep interest rates unchanged and bets for later-than-expected Fed rate cuts should continue to be positive for the US dollar at least until Thursday, when growth data is released. Those results could provide a clearer sense on future changes in monetary policy, said José Prieto Jaramillo, business head at BTG Pactual in Bogota.

With the GDP report from the world’s largest economy, “we’re going to see if the monetary position remains restrictive in the US, or if there is room to be flexible,” Prieto said. “For now, I am more inclined towards the first.”

Stocks rose on reports that China is mulling a new stabilization plan. Chinese policymakers are seeking to mobilize about 2 trillion yuan ($279 billion), mainly from the offshore accounts of state-owned enterprises, as part of a stabilization fund to buy shares onshore through the Hong Kong exchange link, said people familiar with the matter, asking not to be identified discussing a private matter.

With Latin American stocks relying heavily on commodity prices, investors will be less worried about them falling if China is successful with its stimulus plan, said Greg Lesko, managing director at Deltec Asset Management LLC. 

The Hang Seng index leaped as much as 3.7% before closing 2.6% higher, its biggest gain since Nov. 15. South Korea’s won strengthened after Bloomberg’s report on China’s rescue package.

In Europe, EU leaders are ready to play hardball with Hungary if Prime Minister Viktor Orban continues to block a €50 billion ($54.5 billion) support package for Ukraine at an extraordinary summit next week, people familiar with the preparations said. The forint traded at the weaker end of recent ranges on the news. 

On Tuesday, Turkey’s parliament approved Sweden’s accession to NATO, leaving Hungary as the lone holdout to the defense alliance’s northern enlargement.

NEW SALES

Emerging-market borrowers, meanwhile, continue to tap debt markets, with Romania and Ivory Coast adding to a swath of sovereign sales seen so far in 2024. 

In Latin America, companies including copper producer Codelco and Cosan also announced hard-currency bond offerings, while Mexico telecom giant America Movil kicked off a global peso bond deal.