EM Stocks Gain as Fed Cut Bets Seen Boosting Riskier Assets

(Bloomberg) -- Emerging stocks resumed their advance, led by Chinese tech blue-chips, after Federal Reserve Chairman Jerome Powell signaled that US interest rates would be reduced starting from next month.

The MSCI EM equities benchmark rose 0.6% and heads for the highest close in five weeks, driven by shares of Tencent Holdings Ltd. and Alibaba Group Holding Ltd. Developing currencies were mixed against the dollar, with the Thai baht and Malaysian ringgit leading gains.

The signal from Powell that the US is nearing the start of monetary easing means investors will now look for clues about the pace of reductions. Emerging stocks have lagged the gains in US equities this year as traders repeatedly pushed back their views on when the Fed will start reducing borrowing costs, which should boost the allure of riskier assets.

“If the Fed is truly data dependent, we expect firm US data over the coming weeks to reinforce our belief that the economic trajectory does not warrant aggressive easing,” said Win Thin, global head of markets strategy at Brown Brothers Harriman in New York. “The dollar is likely to remain under pressure after Powell’s dovish Jackson Hole speech.”

The Hungarian forint and the Polish zloty were the worst performers among emerging currencies on Monday, while the South African rand pared most of its losses in thin market liquidity due to a holiday in the UK.

Hungarian central bank will hold a policy meeting on Tuesday, with most analysts in a Bloomberg survey expecting the base rate to remain unchanged at 6.75% following a surprisingly high inflation reading for July. Poland’s government is due to present its 2025 budget draft this week.

The Israeli shekel shrugged off rising tensions in the region, gaining 0.4% to the dollar amid signs that talks for a cease-fire in Gaza will continue.