Rand leads EMFX higher, stocks dip amid China Covid woes

Emerging market currencies attempted to bounce back on Monday, with South Africa’s rand leading gains after President Cyril Ramaphosa was re-elected leader of the ruling African National Congress (ANC) party, while stocks dipped, pressured by declines in China.

The EM currencies index, which clocked its biggest weekly decline last week since mid-November, inched up 0.2%, with the rand jumping over 2.2% by 0940 GMT.

Markets cheered Ramaphosa’s re-election, as he beat out former health minister Zweli Mkhize in the race.

“This is positive from a market viewpoint as it safeguards the status quo against the negatives of a potentially more populist policy had Ramaphosa lost,” said Cristian Maggio, head of portfolio strategy at TD Securities.

South Africa’s 10-year local government bond yield sank to 10.15%, the lowest in three weeks, while stocks in the region rose 0.2%.

The MSCI’s index for developing world stocks, on the other hand, dipped 0.2% and China stocks, closed lower. The country officially reported its first coronavirus-related deaths since unwinding some of its strictest pandemic control measures earlier this month.

Reports of the deaths added to worries that China’s rapid easing of Covid measures could lead to more infections and further disruptions to economic activity caused by reinforcement of curbs.

“Investors will continue to focus on China as a potential growth engine in 2023. But for the time being, we are yet to see any material outperformance (in China),” said Chris Turner, global head of markets at ING in London.

“This suggests that the risk of a disorderly exit from zero-Covid policies trumps the reopening story for the time being.”

EM stocks posted their steepest weekly decline in seven weeks on Friday. They ended over 2% lower in a week dominated by major central banks, including the US Federal Reserve, backing views that monetary policy would stay restrictive for longer.

The stocks index is set to end the year with a decline of 22.5%, its worst performance since 2008.

The dollar index eased after a recent rally supported by a string of central bank meetings last week saw the Fed, the Bank of England, and the European Central Bank each raising rates by 50 basis points, also pushing EMFX higher.

Over the weekend, Peruvian President Dina Boluarte, who is leading a transitional government following the ouster of her predecessor, will replace the prime minister as part of a reshuffling of her Cabinet.