September 13, 2018 / 9:03 AM / 2 months ago

EMERGING MARKETS-Trade hopes boost emerging stocks, lira dips before rate decision

LONDON, Sept 13 (Reuters) - Hopes for new trade talks between the United States and China boosted emerging-market stocks on Thursday, while Turkey’s lira slipped before a critical central bank meeting.

MSCI’s benchmark emerging-market equities index rose 1 percent after the United States invited Chinese officials to restart trade talks, as .S. tariffs on $200 billion worth of Chinese goods loomed.

“We are witnessing some signs of respite across risky assets due to this news, but we still expect trade tensions to escalate in coming months,” said Piotr Matys, an emerging markets strategist at Rabobank

MSCI’s Asia ex-Japan index rose 0.9 percent after its longest losing streak since 2000. Hong Kong shares leapt 2.5 percent in their biggest daily gain since May 2016. Chinese mainland stocks rose over 1 percent. China’s yuan strengthened by 0.1 percent .

Other beaten-down markets also gained. Indonesian shares rose 0.8 percent, Polish stocks 1 percent — recovering from 1 1/2-month lows — and Russian shares were up 0.4 percent.

In Turkey, the lira retreated 0.6 percent before the central bank meets. Investors expect it to raise rates after inflation shot up to almost 18 percent in August, its highest in nearly 15 years.

The central bank confounded expectations for a rate increase at its July meeting, but it has signalled it will act this time.

“The central bank has put pressure on itself by fuelling expectations that interest rates may increase so there is no room to disappoint the market,” Matys said.

In a Reuters poll, all 11 economists predicted the benchmark one-week repo rate would be raised from 17.75 percent. Forecasts ranged from an increase of 225 basis points to 725 bps .

Matys said Rabobank’s call was for a 500 bps hike to restore confidence among foreign investors, households and businesses, but the bank would need to make a hawkish statement that it was ready to raise rates again if necessary.

Turkey has ruled that property sales and rental agreements must be in lira in a fresh step to support the currency, which is down around 40 percent versus the dollar this year .

Russia’s rouble gained 0.6 percent before its central bank meets on Friday. It is expected to leave rates unchanged, according to a Reuters poll. However, the governor has said rates could rise as early as this month in light of increased volatility.

The rouble has been pummelled by the threat of more U.S. sanctions. U.S. President Donald Trump signed an executive order on Wednesday to impose sanctions on foreign countries or people who try to interfere in U.S. politics.

Hungary’s forint slipped 0.1 percent after the European parliament voted on Wednesday to punish Hungary for flouting European Union rules on democracy.

The forint had sold off half a percent on Wednesday, then recovered after Poland said it would block any EU sanctions on Hungary.

For GRAPHIC on emerging market FX performance 2018, see tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2018, see tmsnrt.rs/2dZbdP5

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For CENTRAL EUROPE market report, see

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For RUSSIAN market report, see) Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg

on year

Morgan Stanley Emrg Mkt Indx 1014.46 +9.90 +0.99 -12.43

Czech Rep 1093.78 +4.47 +0.41 +1.45

Poland 2226.97 +16.81 +0.76 -9.52

Hungary 36090.11 -13.96 -0.04 -8.35

Romania 8237.33 -24.53 -0.30 +6.24

Greece 692.22 +1.95 +0.28 -13.73

Russia 1079.78 +8.46 +0.79 -6.47

South Africa 50110.52 +295.78 +0.59 -4.61

Turkey 92180.40 -46.98 -0.05 -20.07

China 2686.58 +30.47 +1.15 -18.77

India 37717.96 +304.83 +0.81 +10.75

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2018

Czech Rep 25.57 25.58 +0.04 -0.17

Poland 4.31 4.31 -0.10 -3.12

Hungary 325.29 324.88 -0.13 -4.54

Romania 4.64 4.63 -0.07 +0.88

Serbia 118.17 118.23 +0.05 +0.19

Russia 68.56 68.94 +0.56 -15.91

Kazakhstan 374.67 377.37 +0.72 -11.18

Ukraine 28.11 28.04 -0.25 +0.12

South Africa 14.85 14.94 +0.59 -16.80

Kenya 100.95 100.75 -0.20 +2.13

Israel 3.58 3.57 -0.13 -2.82

Turkey 6.36 6.33 -0.58 -40.46

China 6.85 6.86 +0.14 -4.99

India 72.03 72.15 +0.17 -11.38

Brazil 4.16 4.16 -0.09 -20.39

Mexico 19.03 19.01 -0.08 +3.25

Debt Index Strip Spd Chg %Rtn Index

Sov’gn Debt EMBIG 396 -1 .05 7 63.76 1

Reporting by Claire Milhench

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