China and India joined forces to drive the MSCI Emerging Markets Index to soar! The biggest one-day increase since December

Zhitongcaijing · 06/03 11:25

The Zhitong Finance App learned that after the release of favorable Chinese economic data, an important benchmark index for measuring emerging market stock markets recorded the biggest increase since this year. The main logic behind this year is that expectations for China's economic recovery and election results in India, Mexico, and South Africa have caused large fluctuations in the money market and stock market. Among them, after the Modi government won a major victory, the massive rebound in the Indian stock market instantly led the MSCI Emerging Markets Index to rise. Statistics show that the MSCI EM Stock Benchmark (MSCI EM Stock Benchmark) rose 2.1%, the biggest one-day increase since December last year, while Asian technology stocks led the overall rise in this index.

According to data from a private Caixin PMI survey, manufacturing activity in China expanded at the fastest pace in the past two years in May. In India, post-vote poll data showed that India's ruling party, led by Prime Minister Narendra Modi (Narendra Modi), was a resounding victory, which meant that a new wave of structural reforms and government-led infrastructure in India was about to hit. The Indian stock market soared to record levels, and the Indian rupee and sovereign bonds also climbed. Public opinion polls initially showed that after the Modi government won a major victory, the Indian stock market rebounded, while China's PMI economic data further boosted the MSCI Emerging Markets Index.

On Saturday, India's general election officially came to an end, and the final results are about to be released. According to poll data, the coalition led by the BJP won 360 to 400 seats in the general election that ended on Saturday, far exceeding the 272 seats needed to form the next government.

An overwhelming victory would ensure the continuity of India's current structural reform policies. Some analysts believe that if the reforms promoted by the Modi administration continue, they will bring an optimistic profit growth rate to Indian companies, thereby attracting large-scale inflows of foreign capital in US dollars.

In other emerging markets, although the Mexican election also produced clear winners, the impact on the market was less positive. The country's preliminary election results showed that the current ruling party won by an overwhelming margin, which may enable it to strengthen the country's control over the economy and weaken checks and balances on its power, so the Mexican peso declined.

Negative Factors: “Non-Friendly Policy” Concerns

The South African rand exchange rate fluctuated between ups and downs, as investors expected South Africa to experience further turmoil after last week's election did not produce an absolute winner, while the outcome of ongoing coalition government negotiations is still highly uncertain. The African National Congress (ANC) is the largest black nationalist political party in South Africa. It is also an inter-ethnic South African political party. It is also the first time since it came to power 30 years ago that it has failed to obtain an overwhelming majority of seats in parliament.

In addition to the large-scale election cycle in emerging markets, the attention of investors in financial markets will also turn to the interest rate cuts that the ECB is expected to begin this week. Europe's performance was relatively weak. In particular, the performance of the Eastern European euro against Eastern European currencies was very weak on Monday.

“In addition to central bank policy meetings held in markets other than the US this week, the market will also focus on the impact of the Mexican and South African election results, and elections in both countries are uncertain,” Dutch International Group (ING) strategist Chris Turner (Chris Turner) said in a report.

Turner stressed that risks include Mexico's Morena Party using its absolute majority advantage to “try to implement unfriendly policies (unfriendly policies) that are unfriendly to financial markets.”

Deutsche Bank proposed the establishment of a tactical long position between the US dollar and the South African rand on the grounds that emerging markets have yet to fully absorb the risks posed by negotiations surrounding the South African coalition government.

Analysts at Deutsche Bank (Deutsche Bank) said in a report: “The possibility of a chaotic political process in the coming weeks is still very high.” “Even if the most likely outcome is the eventual term of another African national government, it is likely that it will be a weak and relatively unstable speed of sound, raising concerns about South Africa's policy implementation.”