Middle East assets lead EM rally on Iran ceasefire announcement
Middle Eastern assets led a rebound in emerging markets after the announcement of a ceasefire between Israel and Iran, even amid accusations the truce was already being breached.
The Israeli shekel advanced as much as 1.8 percent to the strongest since January 2023 before paring gains. Egypt's dollar bonds rallied the most among emerging and frontier markets and stock markets bounced across the region.
More broadly, MSCI's gauge of emerging-market currencies gained 0.7 percent as the dollar weakened. Asian currencies such as the South Korean won and the Philippine peso particularly benefited from the slump in the dollar and the retreat in oil prices. The Egyptian pound strengthened 1.4 percent against the dollar on the offshore market, data compiled by Bloomberg show.
Markets pared some gains after Israel accused Iran of breaching the ceasefire, but clung to hopes the truce will remain in place and ease weeks of tensions in the region. Iran's symbolic strikes on US air bases and the subsequent announcement of a ceasefire has allowed investors to draw a line under geopolitical events for the time being, said Michael Brown, senior research strategist at Pepperstone in London.
'Market participants are now able to switch focus away from the distraction of geopolitics, and back toward the fundamental bullish narrative which has been driving things for some time,' Brown said.
In stocks, MSCI's index for EM equities jumped 2.4 percent, the most in more than a month, with the Tel Aviv bourse jumping as much as 1.7 percent and gains in much of Asia and developing Europe.
In the Gulf, equities in Dubai gained as much as 3.3 percent, the most since Dec. 16, while indexes in Riyadh, Doha and Kuwait joining the rally.
'EM equities could stand to outperform if sentiment continues to markedly improve, and risk appetite remains solid' Brown said.
In eastern Europe, Hungary's central bank is expected to hold interest rates steady for a ninth month. Slovenia, meanwhile, is set to sell its first sustainability-linked bond, joining other developing nations that are seeking to raise cash before any re-escalation in tensions with Iran. Mexico on Monday sold $4.5 billion in bonds in a two-part deal, with others including Kazakhstan also preparing debt sales.
Provided the truce holds, investor attention should shift to Federal Reserve Chair Jerome Powell, who will testify before Congress later in the day to explain why interest rates will likely remain steady until at least September.
'New catalysts for moves will probably come from outside the Middle East if the truce does appear to hold,' said Eddie Cheung, a strategist at Credit Agricole CIB in Hong Kong. The market may focus back on Powell's testimony as a potential next driver.'
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