Stocks, FX rise as mood improves; Evergrande debt woes in focus

Dec 7 (Reuters) – Most emerging market stocks and currencies rose on Tuesday, tracking gains in broader markets with concerns over the Omicron variant receding but potential debt defaults in China’s property market still in focus.

MSCI’s index of emerging market stocks (.MSCIEF) jumped 1.5%, supported by gains in Chinese stocks after the central bank cut cash reserve requirements for banks, freeing billions in long-term liquidity to bolster slowing economic growth.

China’s blue-chip index (.CSI300) ended about 0.6% higher.

“China has been wary in previous months of unleashing stimulus, as it has dealt with the risks of higher inflation and disrupted supply chains … In recent weeks these pressures have begun to ease,” said Alex Kuptsikevich, senior financial analyst at FxPro.

Debt-saddled property developer China Evergrande (3333.HK), was also in focus amid reports that some offshore bondholders of the firm did not receive coupon payments by the end of a 30-day grace period on Monday. read more

A failure to make interest payments could put Evergrande at risk of becoming China’s biggest-ever defaulter. Investors are now watching whether the firm will head into debt restructuring.

“The worst-case scenario for the current situation is a sector-wide domino effect. A default by one or more developers would block other players’ capital markets, triggering a spiral of rising bond market yields. In that case, investors would demand a higher risk premium for emerging market securities,” Kuptsikevich added.

Emerging markets benefited from improving risk sentiment, amid hopes the Omicron variant would be shown to cause only mild symptoms.

South Africa’s rand gained 0.1% ahead of third-quarter gross domestic product (GDP) data that is expected to show the economy contracted 1.2% quarter on quarter following civil unrest over the arrest of former President Jacob Zuma in the quarter.

Statistics South Africa is expected to release its third quarter GDP numbers at around 0930 GMT, with a Reuters poll forecasting a 3.5% year-on-year growth, much lower than the 19.3% growth recorded in the same period last year.

Russian stocks (.IMOEX) led gains in Europe, the Middle East and Africa with a 1.1% rise, tracking oil price rises.

Russia’s rouble fell 0.2% ahead of a video call between Russian President Vladimir Putin and his U.S. counterpart Joe Biden later in the day, with the threat of new sanctions against Moscow lingering over the talks. read more

Turkey’s lira was the best performing emerging markets currency, jumping 1% as it recovered from near record lows.

For GRAPHIC on emerging market FX performance in 2021, see http://tmsnrt.rs/2egbfVh

For GRAPHIC on MSCI emerging index performance in 2021, see https://tmsnrt.rs/2OusNdX

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Reporting by Ambar Warrick; Editing by Edmund Blair

Our Standards: The Thomson Reuters Trust Principles.