EMERGING MARKETS-Stocks bounce as banking fears ease, Hungary rate decision eyed

Emerging market stocks rose for the first time in three sessions on Tuesday as worries over an imminent global banking crisis eased, while Hungary's forint strengthened against the euro ahead of a key central bank decision. The MSCI's index for EM equities rose 0.6% after two-straight days of declines, with Hong Kong stocks rising 1%.

Emerging market stocks rose for the first time in three sessions on Tuesday as worries over an imminent global banking crisis eased, while Hungary's forint strengthened against the euro ahead of a key central bank decision.

The MSCI's index for EM equities rose 0.6% after two-straight days of declines, with Hong Kong stocks rising 1%. South African stocks rose 1.3%, while Budapest shares gained 0.9%. Investors took comfort from a deal for First Citizens BancShares to buy Silicon Valley Bank's (SVB) assets. The deal, which was backed by U.S. authorities, soothed worries about the banking sector following the largest bank collapse since the 2008 financial crisis and turmoil in the European banking sector.

"Risk sentiment recovered yesterday as markets appeared calmer about the health of European lenders which had generated a sell-off on Friday," said ING strategist Frantisek Taborsky. The MSCI's index is set for a quarterly gain of 1.3%, which will mark its second-straight quarterly rise.

However, the overarching theme of rising interest rates, fears over growth and the banking sector have dulled the broader upbeat picture for developing economy assets that saw them come into favour in the final months of last year and the start of 2023. The dollar eased on the day, giving way for EM currencies to gain. South Africa's rand added 0.6%, while the Russian rouble firmed 0.2%. Mexico's peso was also marginally higher.

Market participants also awaited a decision from the National Bank of Hungary (NBH), which is widely expected to keep its base rate steady at 13%. Analysts have also pared back rate cut views by the end of 2023 amid high inflation and the banking sector problems. The forint firmed 0.2% at around 384 against the euro, with data showing Hungary's gross average wages grew 16.1% year-on-year in January, the 13th-straight month of double-digit growth, although the rise trailed sky-high inflation.

"We expect rates to remain unchanged, in line with market surveys, and a hawkish tone... the forint's return to the 400 EUR/HUF level again will not allow the NBH any hints of dovish signals," Taborsky said. Later in the week, the Bank of Mexico is expected to moderate the pace of its monetary tightening, and hike the benchmark interest rate by 25 basis points on Thursday as inflation has shown signs of cooling.

Brazil's central bank is still expected to cut interest rates in November despite its hawkish policy statement indicating no room for monetary easing amid rising inflation expectations, a bank survey showed on Monday. For GRAPHIC on emerging market FX performance in 2023, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2023, see https://tmsnrt.rs/2OusNdX

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