(Bloomberg) — Currencies in developing economies mostly weakened to the dollar as China’s new stimulus measures failed to spark a broader positive sentiment toward riskier assets.
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The MSCI index of emerging currency returns dropped 0.1%, with the South African rand and South Korean won losing about 0.7% against the greenback. The equities equivalent pared initial gains as optimism over the impact of the fresh stimulus measures on the Chinese economy abated. The US bond markets are closed for a holiday on Monday.
While Chinese mainland stocks jumped on Monday, the decline in Hong Kong-listed shares offset the impact on the EM equity benchmark.
Investors are showing muted reaction to the outcome of the highly-anticipated briefing in Beijing on Saturday by Finance Minister Lan Fo’an. The minister pledged new steps to support the property sector and hinted at greater government borrowing, but fell short of providing the headline figure for the stimulus and didn’t announce additional plans to shore-up consumption.
China Underperformance
“In our view, the disappointing fiscal news out of China this weekend curtails upside momentum for risk assets and offers USD support,” Elias Haddad, a strategist at Brown Brothers Harriman, said in a note. “Importantly, the bias is for a stronger USD because there is greater room for an upward reassessment in US interest rate expectations relative to other major economies.”
Chinese stocks, which began outperforming the rest of emerging markets amid the initial enthusiasm about stimulus, have resumed their underperformance. Chinese stocks trailed EM stocks on Monday, building on the biggest weekly underperformance since October 2022 last week.
Still, the latest round of stimulus prompted Goldman Sachs Group Inc. to upgrade its forecasts for China’s growth this year and next.
In emerging Europe, the Hungarian forint outperformed regional peers with a 0.2% gain to the euro, and holding mostly flat against the dollar, after the government unveiled the latest plan to help growth before 2026 elections.
The Economy Ministry in Budapest on Monday circulated a draft measure designed to allow savers to tap into their private pension funds tax free to buy or renovate property next year.
–With assistance from Srinivasan Sivabalan.
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