Emerging Market Stocks Surge Most Since 2022 After Iran Truce

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(Bloomberg) — The rebound in emerging-market assets accelerated Wednesday, with stocks heading for their best day since 2022 and currencies erasing year-to-date losses after a ceasefire between the US and Iran pushed oil prices lower.

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MSCI Inc.’s benchmark for developing-nation equities rose as much as 5%, with oil-importing nations including South Korea and Taiwan leading the gains. Dubai — a key target of Iranian attacks during the conflict — posted its biggest surge in a decade, while Pakistan stocks were also among the top gainers, after the country emerged as a key mediator in securing a two-week pause in fighting.

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An index of emerging-market currencies climbed for a fourth day, while as many as 11 emerging-market currencies jumped more than 1%. Gains were led by a 2.3% jump in the South African rand, which is often seen as a bellwether for the asset class. The Hungarian forint strengthened against the euro as optimism over the Middle East truce added to expectations of an opposition victory in Sunday’s elections.

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Global markets received a boost from a last-minute agreement between the US and Iran to halt hostilities while negotiating a broader peace plan. Oil prices falling below $95 a barrel signaled that the impact on inflation and growth may be less severe than initially feared. 

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The latest moves mean emerging equities are up almost 10% this month, regaining the majority of last month’s losses. The MSCI index has also risen above its 50-day moving average for the first time since March 18, in what is seen as a bullish technical indicator. 

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“This cease fire is a significant boost for emerging markets,” said Rajeev De Mello, a money manager at Gama Asset Management. “Energy importers will be the largest beneficiaries. Many EM countries are large energy importers and were facing severe pressure on their current accounts, on their inflation rates and on their fiscal positions.”

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The relief has prompted investors to return to emerging-market companies tied to artificial intelligence, with valuations made more attractive by the recent selloff. The biggest contributors to the MSCI index’s gains on Wednesday were AI companies, including Taiwan Semiconductor Manufacturing Corp., Samsung Electronics and SK Hynix. 

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While a continued oil-price drop should rekindle expectations for the Federal Reserve to resume policy easing, the truce is still fragile, hinging to a large extent on the reopening of the Strait of Hormuz waterway to oil tankers. 

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“The real test will be where oil prices settle as negotiations continue,” said Kerry Craig, a global market strategist at JPMorgan Asset Management. “Oil prices are not high enough to destroy demand, but are likely to maintain a risk premium and remain much higher than where they started the year.”

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In fixed income, the Indian benchmark 10-year bond fell as much as 13 basis points, the biggest drop since 2022, to 6.91%. Indonesia’s 10-year yield fell 6 basis points, while Korea’s 10-year bond yield dropped 12 basis points to 3.64%.

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—With assistance from Marcus Wong and Matthew Burgess.

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