LONDON: Emerging market investors were in a buoyant mood yesterday, brushing off reports of more violence in Ukraine to buoy equities in Russia and central Europe.
The MSCI Emerging equities index crept back towards the multi-year high reached at the end of July, adding more than 0.5 percent.
Russian shares extended gains made over the past week, advancing nearly one percent, with investors cheered by diplomatic efforts to try and ease tension.
“The market is reacting the right way — it’s the first time stakeholders — Russian, Ukrainian and EU leaders — have sat down and talked since the Geneva talks over three months ago,” said Luis Costa, a senior emerging markets strategist at Citi.
“We have to take this positively. But there is still shelling going on, you still have Russian troops by the border,” he added.
Ukrainian government forces have been fighting pro-Russian separatists in the east of the country - and Kiev accused rebels of launching rockets at a refugee convoy on Monday, an account they dismissed.
Sanctions on Russia, which Nato accuses of backing the rebels, and a retaliatory Russian ban on food imports from the EU have threatened to hobble economic recovery in central Europe.
But investors took heart when a feared escalation in the fighting failed to materialise over the weekend and Russia, Germany, France, Ukraine held talks in Berlin.
Shares in Warsaw rose 0.5 percent while Budapest equities firmed 0.9 percent.
Investors are waiting for Polish wage and unemployment data due at 1200 GMT as they search for clues about the country’s economic health and outlook for inflation.
Analysts are warning, meanwhile, that declining oil prices are likely to start putting pressure on Russian assets and the rouble.
Russian Urals crude fell below $100 a barrel for the first time in a year on Monday, an ominous sign for state finances which are largely dependent on energy related taxes.
Russia has balanced its budget for this year based on a $114 a barrel oil price, with President Vladimir Putin ramping up social and military spending against the backdrop of the Ukraine crisis.
Citi’s Costa played down the possibility of an immediate fiscal crisis, however, pointing to a fiscal surplus though acknowledging this would probably weaken over time.
“Short-term investors might be a little careful about currencies with exposure to oil producers. It’s one more negative factor for the rouble but it’s definitely not one of the major problems for Russia,” he said.
Reuters
