UPDATE 2-Emerging-market stocks hit record high for first time since 2007

  • Reuters
  • Forex News
UPDATE 2-Emerging-market stocks hit record high for first time since 2007
Credit: © Reuters.

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By Marc Jones and Tom Arnold

LONDON, Jan 8 (Reuters) - Emerging-market stocks hit a record high for the first time since November 2007 on Friday as the combination of post-COVID 19 recovery hopes, mass global stimulus and a weak dollar boosted investor confidence.

MSCI's main emerging-market index .MSCIEF , which covers nearly 1,400 companies across 27 developing-world countries set the new record as it topped 1,345 points, a milestone that also took its surge since March's lows to almost 80%.

Investors have stampeded back into emerging assets in recent months, with record monthly inflows in November helping offset the record exodus seen in March as the pandemic shuttered much of the global economy.

The weak dollar flatters home earnings for emerging-market companies in dollar terms and make foreign-currency debt payments easier, said Standard Life Aberdeen investment director Nick Robinson.

"And there are just a lot of stocks that are benefiting from this (global) rotation from growth to value," he added, highlighting mining companies as one sector that has been "on a real tear lately".

MSCI's EM index has a bigger share of mining, energy and financials than the all-world equivalent. It is still heavily weighted towards Asian technology and internet giants however.

Taiwan Semiconductor Manufacturing Company (TSMC) 2330.TW , Chinese duo Alibaba (NYSE: BABA ) 9988.HK and Tencent 0700.HK and Korea's Samsung 005930.KS account for roughly 20% of the index. Adding all tech and communications companies plus internet-focused firms like Alibaba adds up to over 40% of the index.

Developing markets have gained additional momentum this week after the U.S. Congress formally certified Joe Biden's presidential election victory. That has given investors hope that a Democratic-controlled government will lead to heavy spending, supporting global appetite for riskier assets.

MSCI's index of emerging-market currencies also touched records earlier this week, while bond spreads have tightened to near pre-pandemic levels.

There have been some bumps, however. U.S. sanctions against a raft of Chinese firms will see MSCI MSCI.N and other index providers cut three Chinese telecom companies - China Mobile 0941.HK , China Telecom 0728.HK and China Unicom Hong Kong 0762.HK - from their benchmarks. announcements, which means passive funds may have just a day to adjust billions of dollars of investments, wiped a combined $5.6 billion off the value of their Hong Kong-traded shares on Friday and there are worries more companies could also be it.

Nevertheless, the hope of a recovery from COVID and normalisation of the world economy has seen MSCI's EM index overtake the S&P 500 in terms of performance for the last year, although it still lags well behind the tech heavy Nasdaq .

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ MSCI emerging market stocks index sector weightings since 1994

https://tmsnrt.rs/2JVYgZD MSCI EM vs S&P 50 and Nasdaq

https://tmsnrt.rs/2XqbKQq China's growing dominance of MSCI's emerging market index

https://tmsnrt.rs/3otuD0L

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