Following Brexit, there is less likelihood for a US Fed rate hike, which favors the investment appeal of emerging markets [Xinhua]
Japanese Prime Minister Shinzo Abe’s post-parliamentary election victory statement about “putting in place an economic package” has reverberated as far away as Latin America with major indices – and currencies – jumping on expectations of new stimulus.
The MSCI’s benchmark EM index – which measures equity market performance in some 23 emerging countries – jumped more than two per cent on Monday, registering the highest level in more than 70 days.
The MSCI EM index comprises 10 per cent of world market capitalization.
On Tuesday, it rose another half per cent.
Emerging markets have in the past six months regained a luster not seen since 2010, appearing appealing as high risk investments for foreign direct investments looking to move away from stalled European and Japanese markets where stimulus programs have desperately been trying to reduce currencies and offset stagnation and deflation.
New stimulus means extra liquidity in markets and investors will have to move the extra cash somewhere profit is generated – ultimately emerging markets are looking more lucrative.
But the US Federal Reserve’s stalled decision on a second rate hike this year has played well for emerging markets. Fed chief Janet Yellen has signaled that fiscal policy will remain accommodative as the long-term effects of Brexit play out and the US economy creates jobs on an even level.
In June, the US economy created 287,000 new payroll jobs following only 11,000 in May.
Brazil’s benchmark Bovespa index opened up 1.16 per cent on Tuesday, although the real slid as the Central Bank intervened to lower the currency against the dollar.
South Africa’s JALSH (all shares) index was up 0.50 per cent to 52,433 at press time while the rand currency gained one per cent against the US dollar.
Argentina’s benchmark MERVAL index rose 1.96 to 14,977 while its peso strengthened 0.48 per cent against the US dollar.
In China, the benchmark Shanghai Composite jumped 1.82 per cent to 3,049 while Hong Kong’s Hang Seng Index also closed up 1.65 per cent at 21,224.
In Indonesia, Jakarata’s benchmark JCI closed up 0.60 per cent to 5,099 while India’s Bombay Sensex index closed up 0.66 per cent at 27,808.
The BRICS Post with inputs from Agencies