EMERGING MARKETS-EM stocks set for weekly gains on China stimulus hopes, Fed rate cheer

Emerging market stocks were set on Friday for their biggest weekly gain in five months, buoyed by growing hopes of policy stimulus from China as well as expectations that the Federal Reserve was close to the end of its rate hikes. MSCI's index of emerging market equities climbed 0.6%, extending gains to the sixth straight session and on track to end the week 2.8% higher.

Emerging market stocks were set on Friday for their biggest weekly gain in five months, buoyed by growing hopes of policy stimulus from China as well as expectations that the Federal Reserve was close to the end of its rate hikes.

MSCI's index of emerging market equities climbed 0.6%, extending gains to the sixth straight session and on track to end the week 2.8% higher. Asian shares scaled four-month highs, with China's blue-chip stocks index gaining for the second straight day on hopes of more stimulus from China after its central bank cut some key policy rates to help its economy through its shaky post-pandemic recovery.

UBS, Standard Chartered, Bank of America (BoA) and JPMorgan now expect China's GDP growth to be between 5.2% and 5.7% this year, down from an earlier range of 5.7% to 6.3%. Also helping stocks was the Bank of Japan's decision to maintain ultra-easy monetary policy on Friday, while fresh U.S. economic data, including higher-than-expected weekly jobless claims soothed some concerns about the Fed's monetary policy plans after the central bank's hawkish pause earlier this week.

"We think external conditions remain moderately supportive for EM risk appetite, but far from bullish given the uncertainties in the U.S. economy," said Jon Harrison, managing director of emerging market macro strategy at TS Lombard. "We do not, however, believe that China will be the driver for EM. The stimulus and hopes of more to come are certainly positive, but the economic scarring from COVID and the property sector is deep."

EM currencies rose 0.3% against a muted dollar, clinging to two-month highs. They were set for their third straight week in the green with gains of 0.6%. Turkey's lira was at 23.676 against the dollar, having stabilised from record lows hit earlier this week.

Turkey will take steps to lower inflation and will follow free market rules as it acts to raise competitiveness and productivity, Vice President Cevdet Yilmaz said on Thursday. Elsewhere, South Africa's President Cyril Ramaphosa arrived in Ukraine on Friday as part of an African peace mission, the South African presidency said on Twitter.

Weekly outflows from EM hard currency bonds eased, according to data from JP Morgan, while EM equity funds recorded inflows of over $296 million on the week. 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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