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China stimulus hopes lift EM stocks
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Pakistan dollar bonds rally on crucial $3 bln IMF bailout
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MSCI Latam stocks set for best month since March 2022
By Shreyashi Sanyal
June 30 (Reuters) - Emerging markets stocks and currencies were to set end the first half of the year with small gains on Friday, while growing evidence of a slowdown in China supported expectations of more stimulus to boost its economy.
The MSCI's index for emerging market stocks inched 0.2% higher, with China stocks doing most of the heavy lifting on the day after data showed factory activity declined for a third consecutive month in June which boosted hopes Beijing will announce more stimulus measures to increase demand.
The EM stocks index is now set to end the first half of 2023 with gains of 3.2%, which is still a welcome surprise from declines of over 22% last year.
Investors have dialled down their hopes from the start of the year about China's post-COVID recovery, while some central banks in the region have started to pause on their interest-rate hikes, giving way to more optimism for the second half of 2023.
China still remained a key player in driving broader gains for developing markets as investors were hopeful of more stimulus to jumpstart its ailing economy.
"A series of targeted measures should help sustain GDP growth of 5%–5.5% (in China) for the full year, and strengthen earnings and investor confidence," said Mark Haefele, chief investment officer at UBS Global Wealth Management.
"With China's roughly 32% weight in MSCI EM, we believe this should buoy returns for the broader index in the coming months."
The MSCI's index for EM currencies slipped 0.2% as the dollar remained firm, as it has for most of the year so far, on hawkish comments from U.S. Federal Reserve Chair Jermore Powell, and was set to end the first half of the year with gains of 0.8%.
Investors now await U.S. inflation data later in the day.
Pakistan's sovereign dollar bonds rallied after the International Monetary Fund reached a staff-level pact with the South Asian nation on a $3 billion stand-by arrangement, just as it was on the brink of default.
The Russian rouble slumped to a more than 15-month low against the dollar and euro, on domestic political risks after an aborted armed mutiny over the weekend.
The rouble and Turkey's lira were among the top decliners in the first half of the year.
Latin American markets have fared better than their developing market peers, with the MSCI's index for stocks on track for its best monthly performance since March 2022 as it gained over 10% in June.
Stocks in central and south America are also on track for their fourth consecutive quarter in the green.
Focus will be on Colombia's central bank later in the day, which is widely expected to hold its rate steady, ending nearly two years of rate rises meant to contain inflation.
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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For RUSSIAN market report, see (Reporting by Shreyashi Sanyal in Bengaluru; Editing by Krishna Chandra Eluri)
