Emerging markets gain amid resilient US jobs data

Emerging market stocks saw gains on Monday, tracking the movement of global equities. The MSCI emerging market stock index rose by 0.4% as of 0815 GMT, buoyed by significant advances in Hong Kong and Taiwan, which both ended the day over 1% higher.

A strong U.S. jobs report from Friday showed that job gains reached a six-month high in September, with the unemployment rate falling to 4.1%. This pointed to a resilient economy, suggesting the Federal Reserve may not need to implement large interest rate cuts this year. With this data, expectations shifted to smaller cuts by the Fed, supporting the U.S. dollar and putting pressure on most emerging market currencies.

Kyle Chapman, an FX markets analyst at Ballinger Group, noted that the U.S. economy’s strength has reshaped expectations regarding the Fed’s approach. According to Chapman, this has been bearish for emerging market currencies, though there has been a positive shift in risk sentiment that has tempered some of these effects. The MSCI emerging market currency index slipped by 0.2%, with most Asian emerging market currencies trading lower.

In Central and Eastern Europe, most currencies, like the Hungarian forint, were stable against the euro, while local stock indexes experienced gains. Meanwhile, South Africa’s rand rose by 0.6% against the U.S. dollar amidst volatile trading. Conversely, Russia’s rouble dropped nearly 1%. Central bank data from South Africa showed an increase in net foreign reserves, reaching $61.029 billion at the end of September, compared to $60.141 billion in August.

Elsewhere, Moody’s downgraded Senegal’s long-term rating to ‘B1’ from ‘Ba3’, highlighting a weaker-than-expected fiscal and debt situation, while S&P upgraded Serbia’s rating to ‘Bbb-/A-3’ due to strong GDP growth and improved external financial reserves.

Investors will be keeping a close eye on interest rate decisions from India, Israel, Peru, and Kenya this week. Chinese markets remained closed on Monday due to a public holiday but are set to resume trading on Tuesday. Additionally, senior officials from China’s leading economic planning agency are scheduled to discuss measures to bolster economic growth.

Fidelity Emerging Markets Limited (LON:FEML) is an investment trust that aims to achieve long-term capital growth from an actively managed portfolio made up primarily of securities and financial instruments providing exposure to emerging markets companies, both listed and unlisted.

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