EMERGING MARKETS-Hong Kong tech rally supports stocks, FX recovers slightly

Gains in major technology stocks helped emerging market equities reach a near two-week high on Monday, while currencies rose slightly from of last week's losses as investors remained on edge over rising inflation.

Gains in major technology stocks helped emerging market equities reach a near two-week high on Monday, while currencies rose slightly from last week's losses as investors remained on edge over rising inflation. Hong Kong-listed Baidu, Alibaba Group, and Tencent, which are some of the largest emerging market (EM) stocks, rose between 2% to 8% on easing concerns over the long-term impact of a regulatory crackdown in China.

The three, known informally as the BAT trio, helped MSCI's EM index add 0.8%. Alibaba rose the most after Daily Journal Corp, chaired by Charlie Munger, boosted its Alibaba holdings by 83% during the third quarter. Most emerging market currencies recovered from last week's losses, but remained under pressure from surging oil prices and energy shortages, which could feed into inflation and keep economic growth slow - a phenomenon referred to as "stagflation".

"Higher energy prices/shortages will inevitably make their way through global value chains in the form of rising prices and potential shortages of industrial and consumer goods," Jeffrey Halley, senior market analyst at OANDA wrote in a note. Turkey's lira rose 0.4% from record lows after data showed the country's current account unexpectedly swung to a surplus in August.

But the import-reliant economy is expected to remain under pressure from supply chain disruptions, a falling exchange rate, and rising energy costs. Russia's rouble rose 0.2%, benefiting from stronger crude prices, while Russian stocks touched record highs.

The rouble was among the few EM currencies to gain last week, as a lower-than-expected government forex buying program also lent support. In central Europe, the Czech crown rose 0.1% to the euro, slightly more than its regional peers as September inflation came in above expectations, pointing towards more interest rate support from the central bank.

The focus was also on the parliamentary election, with two main Czech opposition groups securing a majority and the chance to form a government. Rising inflation expectations across emerging markets have spurred several central banks into hiking rates. But a sustained rise in commodity prices may limit their effectiveness.

Polish stocks rose 0.6%, while the zloty was flat as assets in the country appeared to be unperturbed by concerns that Poland could leave the European Union. For GRAPHIC on emerging market FX performance in 2021, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2021, see https://tmsnrt.rs/2OusNdX

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