Trade Hopes, China Credit Lift Stocks Out of Doldrums

LAGOS (Capital Markets in Africa) – Just as investors were beginning to suspect the emerging-market trade is getting crowded, the U.S. and China gave them another reason to throw caution to the wind. Stocks are headed for their biggest advance this month and currencies rebounded from a two-week slump on hopes the two nations will soon end a trade war that’s plagued emerging markets for about a year.

The assets were also buoyed by China’s credit growth, which helped ease worries of a slowdown in the developing world’s biggest economy. That explains the financials index’s 0.9 percent advance, the biggest contributor to the MSCI Emerging Markets Index gain. Chinese companies account for more than a quarter of the measure.

Meanwhile, most currencies posted moderate gains, the biggest of which was the forint’s 0.4 percent rise against the dollar and 0.2 percent increase against the euro, after S&P Global Ratings lifted the sovereign’s rating to two steps above junk. India’s rupee was among the only decliners, weighed down by a rise in geopolitical tensions.

But as traders get swept up in that feel-good feeling, Kit Juckes, a Societe Generale SA global fixed-income strategist in London, has some words of caution:

“I’m worried about a recession” and “I don’t know if emerging markets can ride through that,” he told Bloomberg TV. “In six months it won’t feel to me so much as though I’m standing at the top of a ski slope and I don’t know whether it’s red, green or black. If it’s black, I don’t want to be in something so exciting.”

Source: Bloomberg Business News