(Bloomberg) — Emerging-market benchmarks for stocks and currencies advanced in thin holiday trading, as Iran delivered a new proposal to the US via Pakistan over the Strait of Hormuz, pushing crude lower.
The MSCI Emerging Markets Index ended the day 0.1% higher, with United Arab Emirates stocks, including First Abu Dhabi Bank PJSC and ADNOC Drilling Co. contributing most to the gains. An EM currency index rose 0.1%, helped by gains in the Hungarian forint and Polish zloty. The Mexican peso and South African rand, bellwethers for risk appetite, both strengthened against a weaker dollar.
Oil moved 4.4% lower on Friday, paring the week’s advance amid hopes for a deal to end the Iran war. Traders also assessed the latest US data that showed higher input prices and weakened employment. Most markets in Asia, Latin America, Europe and Africa are closed for Labor Day.
“Liquidity is thin,” said Ning Sun, senior EM strategist at State Street in Boston.“So the price signals may not be a strong indicator for much.”
Emerging-market assets are completing a turbulent week when they repeatedly swung between optimism for an end to the Middle Eastern conflict and concerns over the inflationary impact of oil-price surges. While lingering geopolitical risks have pushed volatility to the highest in more than three years, equity valuations and carry trades are keeping many investors bullish over the medium-term.
“Tensions in the Middle East could escalate again in the near term, but the hit to global economic growth is likely to be contained,” Cassidy Ainsworth-Grace, a macro strategist at Oxford Economics, wrote in a note. “EM earnings momentum will remain positive over the next 12 months, driving stocks higher.”
With earnings estimates for the MSCI index at a record high, analysts have also upgraded their target level for the gauge 12 months from now to a record, implying a 22% gain by April 2027.
Inflows to emerging-market bond funds continued this week despite the Strait of Hormuz staying shut, according to data by JPMorgan Chase & Co.
In currency markets, the forint gained 0.3% against the dollar and zloty advanced 0.2%. Hungary has released previously undisclosed details of a €1 billion ($1.2 billion) loan that outgoing Prime Minister Viktor Orban’s government took from China in 2024, news website 444.hu reported Friday.
Barclays strategists recommend closing long positions in the lira as the rise in oil prices threatens to widen Turkey’s current account deficit and undermine the currency’s outlook.
–With assistance from Boris Korby.
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