Stocks index recovers on Hong Kong shares rally

A rally in Hong Kong stocks lifted a broader index of emerging market shares from one-week lows on Thursday, while losses in most other bourses amid recession worries capped gains.

MSCI's index of emerging market stocks EEFS rose 1.0% after two days of declines. Hong Kong's tech, internet and property stocks rallied, lifting the main index HSI 3.4% as investors cheered some easing of COVID curbs in China.

But, as recession fears lingered, exacerbated by worries about the U.S. Federal Reserve's hawkish monetary policy stance, risk sentiment took a hit, leaving a just a handful of emerging market stocks indexes with small gains.

The broader EM index is down about 0.6% so far this week, taking losses this year to 21.4%, on track for its worst year since 2008.

But Thornburg Investment Management sounded optimistic on the outlook.

"EM equity valuations have been compressed by high local interest rates and political concerns," Josh Rubin, portfolio manager at Thornburg.

"The set-up is now reversing, which can also be a tailwind for EM equity valuations... EM economies are well-positioned to reaccelerate in 2023 and beyond."

Most currencies made measured moves against the dollar. Against a stronger euro, Hungary's forint EURHUF slumped 1.0% after data showed a yawning trade deficit that rose year-on-year and widended more than anticipated.

Separate data showed inflation in Hungary picked up to an annual 22.5% in November from 21.1% in October, coming in above forecasts, and limiting the central bank's room to cut rates.

"We expect inflation is likely to peak and soften in emerging markets sooner than developed markets. And this has historically been an attractive set-up for EM," Rubin said.

The Polish zloty EURPLN rose 0.2% gains the euro on Thursday, outperforming other regional peers.

Overnight, a slew of central bank moves saw Poland and Brazil continue to keep their respective rates unchanged, while Peru hiked by 25 basis points.

On Wednesday, Peru's sol USDPEN marked its worst session in eight months after President Pedro Castillo was impeached and Vice President Dina Boluarte was sworn in.

South Africa's rand USDZAR was flat against the greenback, lifting off session lows with central bank data showing South Africa's current account deficit narrowed to 0.3% of gross domestic product in the third quarter of 2022 from a deficit of 1.6% in the second quarter.

In Ghana, lawmakers are set to debate on Thursday a censure motion against Finance Minister Ken Ofori-Atta. An International Monetary Fund mission continues in the country until Dec. 13 on talks of financing aid.

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