Emerging stocks get a lift from dovish Fed

Emerging market stocks rose for a second day on Thursday after the US Federal Reserve tempered the expectations for the pace of interest rate rises, while some eastern European assets came under more pressure due to the Greek crisis.

The MSCI emerging markets stock index gained 0.7 per cent after Fed policymakers cut growth forecasts and indicated interest rates could rise more slowly than markets had expected, with the dollar edging down to a fresh four-week low.

MSCI’s broadest index of Asian shares, excluding Japan, rose 0.4 per cent with Chinese shares down as much as 4.1 per cent after a wave of 11 initial public offerings drained liquidity from the market.

Greece debt default

Meanwhile, some central and southeastern European assets felt the heat from Greece drifting closer to default. Euro zone finance ministers were due to meet later in the day, though expectations were low that a deal could be struck.

With closer financial and trade links to Greece than others, the region has seen bonds, stocks and currencies suffer in recent weeks as investors shudder at the prospect Athens could introduce capital controls and face a bank run.

“The biggest challenge for neighbouring CEE periphery countries remains the state of Greek banks,’’ said Simon Quijano-Evans, head of emerging research at Commerzbank.

Greek, Poland stocks

Greek stocks dropped to fresh three-year lows, while stocks in Poland, emerging eastern Europe’s biggest economy and most liquid market, fell 0.5 per cent, hitting a 13-week low and turning negative for the year.

The zloty weakened by 0.3 per cent against the euro, while in the Czech Republic the crown eased 0.1 per cent and stocks fell 1.6 per cent, hitting a 19-week low.

Assets in Poland have also been under pressure from changes in the government after Prime Minister Ewa Kopacz reshuffled her cabinet earlier in the week in a bid to regain voters’ trust and avoid defeat in a parliamentary election due later this year.

Rouble, lira

In Russia, dollar-denominated stocks jumped 1.9 per cent and the rouble strengthened 0.6 per cent against the greenback to trade at 53.28, helped by rising oil prices .

Earlier in the day, Economy Minister Alexei Ulyukayev was quoted by RIA news agency as saying he saw the rouble heading towards around 50 per dollar by year-end

In Turkey, the lira fell 0.26 per cent against the dollar. Shares rose more than 1 per cent, hitting their highest in almost two weeks, though still down 4.8 per cent since the start of the year, after a June 7 election failed to return a majority for incumbent President Tayyip Erdogan.

Ratings agency Standard & Poor’s said it expected uncertainty to persist in Turkey over the next few months and could consider a downgrade if lira volatility, consumer confidence and inflation were to hit fiscal performance and debt metrics.

In Indonesia, the central bank kept the interest rates unchanged as expected, saying the key benchmark rate at 7.50 per cent was still consistent with efforts to contain inflation and make the current account deficit healthier.

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