EMERGING MARKETS-Stocks edge higher; South Africa outperforms in catch-up trade

Economists said that the central bank signalled on Tuesday that it would prefer the zloty to be weaker during the coronavirus pandemic to support economic recovery. "Unless the zloty weakens significantly we don't expect policy normalisation before 2022," Karol Pogorzelski Senior Economist, Poland at ING, wrote in a note.

Emerging market stocks edged up and currencies were muted on Wednesday as investors remained cautious after a resurgence in coronavirus cases in Beijing, while South African markets outperformed in catch-up trade after a holiday. New coronavirus infections in the United States and China continued to chip away at optimism over a smooth recovery from the pandemic, while a border dispute between India and China, along with tensions in the Korean peninsula unnerved investors.

The MSCI's index of emerging market stocks rose about 0.4%. South African stocks led gains for the day, adding about 3% after being closed for a holiday on Tuesday. South Africa's rand rose about 0.7% to the dollar.

Emerging markets had rallied on Tuesday on the back of the increased stimulus measures from major central banks, while strong U.S. retail sales data also added to the optimistic mood. "While fears of a second wave are likely to surface periodically, the Fed and other central banks have made it clear that the unprecedented scope and scale of policy stimulus will continue even as economic growth starts to recover," Mark Haefele, Chief Investment Officer, UBS Global Wealth Management, wrote in a note.

"This backdrop is supportive of equities and other risk assets." Turkish stocks added about 0.4% while the lira traded flat. Russia's rouble rose slightly to the dollar, while stocks added about 0.7%.

Polish stocks rose about 0.5%, while the zloty was flat after the country's central bank kept interest rates unchanged, as expected. Economists said that the central bank signalled on Tuesday that it would prefer the zloty to be weaker during the coronavirus pandemic to support economic recovery.

"Unless the zloty weakens significantly we don't expect policy normalisation before 2022," Karol Pogorzelski Senior Economist, Poland at ING, wrote in a note. "We think interest rates in Poland have already reached their bottom, at least during this policy cycle. Further rate cuts would substantially strain the stability of weaker participants of the financial sector."

The zloty has lost only about 4% this year to the dollar, performing more strongly than most of its emerging market peers. In contrast, the rand has lost about 22% this year, while the rouble has shed about 12%.

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