(April 8): Emerging-market assets gained after a ceasefire deal between the US and Iran caused oil prices to plunge and revived risk appetite.
The MSCI EM stock gauge rose 4.3% on Wednesday, while its currency counterpart added 0.8%. Brent crude oil fell 16% to US$91.70 ($116.88) a barrel at one point. Bonds rallied.
The stronger demand for emerging-economy assets is part of a global rally spurred by the two-week ceasefire agreement that’s expected to result in the reopening of the Strait of Hormuz. The slump in oil prices also has rekindled hopes for the Federal Reserve to resume cutting interest rates later this year.
“High beta names that have been beaten up a little bit lately can benefit from this”, including South Africa, Chile and most of the oil importers in emerging Asia — especially Indonesia and South Korea, said Brendan McKenna, an emerging market economist and strategist at Wells Fargo.
“This is net positive for EM now but if we don’t make progress a geopolitical risk premium will get embedded back into EM asset prices soon enough,” he added.
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In Asia, currencies of net oil importers such as the won, baht and the Philippine peso led gains against the dollar. The South African rand rallied as much as 2.4% against the greenback, while the Mexican peso gained 1.2% at one point.
“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.”
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 six basis points, while Korea’s 10-year bond yield dropped 12 basis points to 3.64%.
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