Emerging Market Surge Amid Central Bank Moves and Election Outcomes

Emerging market stocks saw gains with central bank rate cuts and local elections influencing markets. The MSCI index hit a one-week high, while currencies also rose. Investors are focused on potential U.S. Fed rate cuts and South Africa's ANC coalition talks. Global asset inflows were strong, particularly in India and Mexico.

Emerging market stocks rose on Friday, eyeing gains in a week marked by local elections and central bank rate cuts, while focus lies on a U.S. jobs report for the Federal Reserve's policy easing cues and a press conference by South Africa's ANC.

The MSCI index for EM stocks rose 0.2% to an over one-week high, while the currencies gauge edged 0.1% higher, both looking at their first weekly gain in three. This week saw the Bank of Canada emerge as the first G7 country to trim its policy rate, followed by the European Central Bank's first rate cut in five years. Other central banks like Sweden's Riksbank and the Swiss National Bank also eased their policies earlier this year.

All eyes are on when the world's most influential central bank, the U.S. Fed, will start cutting rates, with traders betting on a 25-basis-point cut in September ahead of the much-anticipated U.S. non-farms payrolls data during the day. The other highlight of the day is an anticipated press conference by South Africa's African National Congress (ANC) after Thursday's announcement that it would seek to form a government of national unity after failing to win a majority in elections. That sent the rand 0.6% higher against the dollar.

"In South Africa, risks are more symmetrically priced and recommend taking profits on our long USDZAR trade. We now recommend buying a 2-week USDZAR digital, as markets are underestimating ZAR appreciation in the case of an ANC-DA coalition," Barclays analysts said. Also rocking the EM space was a Sunday landslide election victory for the ruling MORENA party and its coalition in Mexico, raising concerns around any passing of constitutional reforms unopposed and keeping the peso under pressure.

Meanwhile, a three-day winning streak by Indian stocks helped recoup the steep losses registered on Tuesday after Prime Minister Narendra Modi's alliance won an election by a surprisingly narrow majority. Global investors poured money into all the major asset classes in the week to Wednesday, with Indian and Mexican assets seeing large inflows after election results, Bank of America said in a report, citing EPFR data.

Further, the Reserve Bank of India kept its interest rate unchanged in an expected move. Pakistani stocks fell 1%, dragged by concerns of tax hikes after the government announced a date for the annual budget- June 12.

The Russian rouble traded steady against the dollar ahead of the central bank's policy meeting and before President Vladimir Putin speaks at Russia's premier investment forum in St Petersburg. HIGHLIGHTS:

** Mexico's president-elect says no decision yet on constitutional reforms ** IMF sees Sri Lanka debt deal with external commercial creditors soon

** Saudi Arabia set to raise $11.2 bln in Aramco share offer priced at lower end of range ** No chance of rate cut in 2024- Polish c.bank governor