(Bloomberg) -- Developing-nation assets ended the day higher as traders adjusted to a spate of interest-rate decisions from some of the biggest emerging-market economies following the Federal Reserve’s first interest-rate cut in four years.
MSCI’s index for developing currencies rose 0.2%, capping a seventh session of gains for the longest winning streak since July. Brazil’s real led advances in Latin America as traders priced in a faster pace of rate hikes ahead, which should boost the currency’s appeal among carry traders. A companion index for EM equities climbed 1.1%.
The rally in risk assets comes on the back of the Fed’s dovish pivot, which ignited gains across global markets as traders expressed bullishness that the US central bank will manage to pull off a soft-landing of the world’s largest economy. The Fed’s aggressive start of monetary easing should also help boost EM inflows as traders hunt for yield.
“The more dovish Fed and a strong US economy should further improve financial market risk appetite and undermine the dollar against most EMFX,” said Elias Haddad, senior markets strategist at Brown Brothers Harriman. “In this environment, EMFX with high real and nominal yields, like the real and the rand, should outperform.”
Investors also kept their focus on monetary policy decisions from across the developing world. In addition to Brazil, South Africa and Turkey also decided on borrowing costs — the former delivered a cut while the latter held, both in line with economists’ estimates. The lira edged higher versus the dollar, while the rand swung between gains and losses.
Mexico’s peso fell slipped near the end of the US session after seesawing for most of Thursday, lagging behind its Latin American peers. The Fed’s large cut signaled that the country’s central bank may have to cut interest rates at its Sept. 26 meeting, which may further erode the peso’s appeal.
The currency should also remain volatile amid ahead of President-elect Claudia Sheinbaum’s inauguration in October and the US presidential vote in November, according to Societe Generale strategists.
In credit markets, Sri Lanka reached an agreement in principle with bondholders to restructure about $12.6 billion in bonds, just two days before the country heads to elections that have rattled investors. The government and bondholders agreed on terms including a “27% haircut on the nominal amount of existing bonds,” according to a statement.
Elsewhere, El Salvador’s dollar bonds were some of the best performing credits in emerging-markets on the back of the Fed’s dovish pivot and more pledges of fiscal austerity from President Nayib Bukele.
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