Stocks hit their highest level in a month, but caution remains amid China concerns

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Emerging market equities hit a one-month high on Monday, led by Hong Kong stocks, but concerns about China’s economy amid tight COVID restrictions limited upside potential, while most currencies rose slightly.

The MSCI index of emerging market stocks jumped 1.4% after marking its best week since February 2021 on Friday.

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Hong Kong’s benchmark rose 2.7% on broad-based gains, while those in Taiwan, Turkey and Hungary gained between 0.7% and 1.9%.

Investors remained hopeful that China will ease its COVID restrictions even though officials maintained that tight restrictions would remain as the country reported its highest number of new infections in six months.

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Restrictions have hampered economic activity in the world’s second-largest economy, with data on Monday showing China’s exports and imports unexpectedly contracted in October, the first simultaneous recession since May 2020.

“Our expectations for a significant easing of China’s movement and border restrictions are still for March or April next year,” strategists at Citi Research said.

“The price action repeatedly over the past week suggests markets will be quick to extrapolate any easing measures to calibrate or advance reopening timelines, keeping overall price action choppy, especially as liquidity risks to deteriorate at the end of the year. »

A volatile session in Western Europe as well as swings in US stock futures highlighted investor jitters about a possible global recession as central banks maintain aggressive monetary policy to fight inflation.

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The focus this week will be on the US midterm elections which could see traders making bets on the direction of policy, while US inflation for October will be crucial after data showing an increase in the unemployment rates last week spurred bets that the Federal Reserve may opt for smaller interest rate hikes going forward.

Among currencies, most Asian units suffered but hit intraday lows against a weaker dollar, with the Chinese yuan last down 0.5%. Elsewhere, the South African rand and the Mexican peso were flat or rising.

The MSCI Emerging Markets Currency Index rose 0.5%, nearing one-month highs.

The troubled Turkish lira slipped further to a record high. The International Monetary Fund said on Friday that Turkey should tighten its monetary policy and give more independence to its central bank.

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Most Central European currencies rose against a stable euro, with the Czech koruna hitting two-month highs after the central bank said interest rates would remain relatively high for some time and a decline cannot yet be expected. For 2022 Emerging Markets FX performance chart see http://tmsnrt.rs/2egbfVh For 2022 MSCI Emerging Market Index performance chart see https://tmsnrt.rs/2egbfVh

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For the RUSSIAN market report, see (Reporting by Susan Mathew in Bengaluru; Edited by Mark Potter)