(Bloomberg) — Emerging-market stocks climbed to the highest level in more than two years and most currencies strengthened as Democrat Joe Biden moved closer to victory in the U.S. presidential election.
The MSCI gauge of developing-nation equities rose past a January peak as investors cheered the prospect of a Democratic president and a Republican-controlled Senate. Indonesia’s rupiah and the Russian ruble paced currency advances while the Mexican peso hit its strongest level since March. Not all risk assets rallied. The Turkish lira weakened a second day amid continued underperformance.
A Biden victory appears to be welcomed by emerging markets as it would allow lawmakers to pass a U.S. stimulus plan and reduce geopolitical uncertainty, including trade tensions with China. As expectations for a Biden win strengthened, a measure of volatility in developing-nation currencies dropped to near the lowest since August.
“Markets appear to be taking the scenario of a Biden Presidency and Republican Senate as a cross-asset sweet spot,” ING Groep NV’s London-based strategists Chris Turner and Petr Krpata said in an emailed note.
The MSCI emerging-market stock index climbed as much as 2.4% to the highest since May 2018, erasing all its post-pandemic losses. India’s Sensex index also retraced all its 2020 declines as it rallied during Thursday’s trading. A gauge of developing-nation currencies rose to a nine-month high, advancing 0.9%. Sovereign credit spreads narrowed.
Developing-nation assets see-sawed during Wednesday’s U.S. vote count as Biden’s tally initially fell short of opinion-poll projections and prospects of a sweeping Democrat win in both houses diminished, reducing optimism over a huge stimulus package. Trump’s campaign said it’s suing in Pennsylvania and Michigan to halt vote counts that were trending toward Biden.
While the Democrats now look less likely to take control of the Senate, “expected modest fiscal spending and perceived foreign-policy stability should be supportive of hard-currency EM bonds,” said Ek Pon Tay, a money manager for emerging-market fixed income at BNP Paribas Asset Management in Singapore.
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