(Bloomberg) -- Emerging-market stocks closed at a two-month high Monday, pushed higher by US data that showed robust business activity and bets on a fresh round of China stimulus measures.
The MSCI index for developing-nation stocks rose for a third-straight day following the US report, which found activity expanded in early September but at a slightly slower pace, adding to confidence that the US economy can avoid a hard landing. The gauge closed 0.4% higher.
Earlier, the People’s Bank of China cut the 14-day reverse repurchase rate by 10 basis points to 1.85%, fanning speculation that authorities will unveil further steps to revive growth. Central bank governor Pan Gongsheng is scheduled to hold a press conference Tuesday on financial support for economic development.
“PBOC cutting rates supports our view that Fed easing opens the door for further easing from China,” Jefferies analyst Mohit Kumar wrote, adding that he remains long Asian stocks.
Most emerging-market currencies fell against the dollar, pulling MSCI’s index slightly lower. Higher long-term US Treasury yields following the start of the Federal Reserve interest-rate cutting cycle, coupled with an “unstable risk appetite” are limiting demand for more risk-sensitive currencies, according to Maria Marcos, currency analyst at Monex Europe Ltd.
Brazil’s real underperformed most developing peers, slipping as much as 1.6% before paring losses, as the government trimmed its 2024 spending freeze to comply with fiscal goals. The move deepened investor concerns for the nation’s budget.
“Fiscal risks continue to weigh on the currency on the downside,” said Marcos.
Meantime, Morgan Stanley closed its recommendation to sell an index of emerging-market credit-default swaps after the stop loss level was reached following the Fed’s rate cut.
In bond markets, Sri Lanka’s dollar notes slid as leftist candidate Anura Kumara Dissanayake’s presidential election win cast doubt on the nation’s debt deals and its International Monetary Fund bailout.
Securities maturing in 2025 fell as much as 3.4 cents on the dollar, the biggest drop in about two years, before paring declines to trade around 51.2 cents on the dollar on Monday.
“A Dissanayake win is the worst possible outcome for Sri Lanka’s bonds,” Tellimer strategists Hasnain Malik and Patrick Curran wrote in a note Sunday.
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