Emerging Markets: Stocks hit 2008 high, Slovak FX up
by Sebastian Tong

Reuters    Translate This Article
20 May 2008

LONDON, (Reuters) - Emerging equities rose on Monday to their highest level in 2008 due to recovering risk appetite, while Slovakia's crown currency powered to a record high as the country prepares to join the euro zone next year.

Cheered by Asian and European stock rises, MSCI's benchmark emerging equities market share index hit 1,247.14, breaching its previous year-high of 1,246.36 on Jan. 1. At 1310 GMT, the index was 0.52 percent higher at 1,246.77.

The index remains about 7 percent below its all-time high of 1,345.18 reached on Nov. 1 last year.

The market has been buoyed by some hopes of an easing in the credit crisis which has gripped global financial markets since the second half of last year, while soaring commodity prices are bolstering resource plays in several emerging economies.

'You can make a strong case that emerging markets are well-placed in any scenario going forward—many of them are enjoying a commodities boom and many of their companies are ridiculously cheap at current valuations,' said Matthias Siller, an investment manager at Baring Asset Management. 'There will be some profit-taking for sure, but a lot of people are waiting eagerly to take positions.'

Local currencies were mixed though some units were firmer on expectations that rising inflation would push local interest rates higher. The Hungarian forint was 0.13 percent higher against the euro at 246.55, holding onto gains after hitting 10-month highs on Friday.

NEW HIGHS

Slovakia's crown rose 0.03 percent to trade at 31.50 against the euro, after hitting a new high of 31.470 earlier in the day.

The crown, which has risen 6.6 percent since the start of the year, has gained 1.7 percent since May 7 when the European Commission said the country was fit to adopt the common currency next year. The market expects a strong conversion rate of the Slovak currency to the euro.

Analysts expect Slovakia's euro zone entry to boost efforts by neighbouring central European economies to follow in its footsteps. 'We believe that, overall, the European Union's decision to accept Slovakia into the euro zone as of January 1, 2009 will create a 'catch-up momentum' in the region even amongst the most reluctant convergence members such as the neighbouring Czechs,' said BNP Paribas in a research note.

Ukraine's hryvnia rose 1.74 percent to an 8-1/2-year high of 4.65 against the dollar.

The currency has traded above its official 4.95-5.25 percent band against the greenback in recent weeks amid market speculation that authorities are more tolerant of a stronger currency in the face of rising inflation.

Iceland's crown rose 1.63 percent against the greenback, extending gains from Friday when the central bank unveiled a swap agreement with its counterparts in other Nordic countries. The pact has helped to soothe investors' concerns about its highly leveraged banking sector which was seen as vulnerable to the credit crunch.

Turkish markets were closed for a holiday but the lira softened 0.22 percent against the dollar in offshore trading. The lira is expected to stay weak on heightened political uncertainty after senior members of the ruling AK Party told Reuters they expect the Constitutional Court to close it and to ban the prime minister from politics.

Emerging bond spreads were flat to 256 basis points over U.S. Treasuries.

More bond issuance may emerge amid signs of improving sentiment. Russia's second-largest bank JSC VTB is launching a benchmark U.S. dollar denominated bond, which earlier reports said could be as much as $1 billion.

(Reporting by Sebastian Tong; Editing by David Stamp)

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