(Bloomberg) -- Emerging markets are enjoying a tranquil interval, but with central banks soon to be in action across some of the hardest-hit countries, this reprieve is probably temporary.
Most developing-nation currencies rose, boosting an MSCI Inc. index that tracks the securities from the lowest level since April 2017. A similar measure for equities fell a second day, led by technology shares.
Argentina kicks off Tuesday with its monetary policy meeting, the first since an emergency rate hike to 60 percent last month, while Turkey and Russia will follow on Thursday and Friday. All that comes ahead of the Federal Reserve’s own meeting later this month, at which the U.S. central bank is expected to maintain its tightening path.
“Investors are waiting for monetary policy meetings, with the largest focus this week being Turkey’s, and until then, we may not see any one-way moves,” said Toru Nishihama, a Tokyo-based emerging-market economist at Dai-ichi Life Research Institute Inc. “The EM sell-off is probably not over yet. We’ve still got the Fed’s rate hike in the horizon after this week as well.”
Emerging markets, which were the darlings of 2017, have been reeling this year from a combination of escalating trade tensions, the gradual end of central-bank policy accommodation and a raft of idiosyncratic risks including Argentina’s fiscal woes, Turkey’s twin deficits and Brazil’s contentious elections.
For Turkey and Russia, hints from policy makers rocked markets last week. Turkey’s central bank signaled that higher rates are in the offing, while Russia’s Governor Elvira Nabiullina surprised markets by saying the first rate hike since 2014 could be discussed when policy makers meet. The new head of the monetary-policy department at the Russian central bank, Alexey Zabotkin, subsequently offered a less hawkish message.
Russia’s ruble advanced 0.9 percent against the dollar as of 9:19 a.m. in London, while the South African currency added 1 percent, the most among peers. The rand is due for a tactical correction after falling to a two-year low last week, according to Nedbank Group Ltd.
Glimmers of Hope
Some investors are seeing glimmers of hope for emerging-market assets. Negative local news has already been priced in, and since current-account deficits are lower than four years ago and inflation is relatively tame, the spike in volatility will probably wane over the next few months, according to Zurich-based Bernd Berg, a global macro and foreign exchange strategist at Woodman Asset Management AG.
Still, some patterns suggest that the rout that has taken the MSCI Emerging Markets Index below its 20-year average valuation has further to run before reaching the point where four major turnarounds in the past two decades began.