Emerging Markets Surge Amid Disinflation Hopes and Policy Decisions

Equities in emerging markets surged, driven by record highs in India and Pakistan. Investors responded positively to signs of disinflation in Turkey, despite ongoing challenges. Turkey's banking stocks rose after inflation data, and Poland’s zloty showed gains ahead of a key monetary policy decision. China's stocks lagged, underscoring regional variances.

Equities in most emerging markets rose on Wednesday, with benchmark indexes in India and Pakistan trading at record highs, while investors cheered signs of disinflation in Turkey and awaited a monetary policy decision in Poland. MSCI's index tracking emerging market equities added 0.8% to trade at its highest in over a week, while a currencies gauge was muted against the dollar. Turkey's main stock index rose 1% and banking stocks added 2.5% after data showed inflation rose 71.6% in June on an annual basis, compared with expectations of a increase of 72.6%, according to economists polled by Reuters. The lira was little changed at 32.56 to the dollar.

"Although improvement in underlying price dynamics is already underway, solving the inflation problem requires time and discipline" said Bartosz Sawicki, market analyst at Conotoxia fintech. "A return to single-digit inflation before 2027 seems highly unlikely. In the short term, exchange rate dynamics will remain unfavourable."

The lira had initially dropped to record lows as investor confidence ebbed against the backdrop of inflation that hit its highest level since November 2022 in May as a result of unorthodox monetary policy. In focus will be a monetary policy decision out of Poland. The zloty inched up 0.2% ahead of the decision due at 1200 GMT, where the regulator is widely expected to leave borrowing costs unchanged at 5.75%.

The currency has been among better performers among central and eastern European peers, up nearly 1% year-to-date after the domestic central bank paused interest rate cuts on fears of price pressures flaring up. Most other currencies in the region were roughly flat ahead of France's second round of elections.

In south Asia, India's BSE Sensex stocks index climbed 0.5% to hit a record high, underpinned by HDFC Bank and the expectation the private lender's weight could be increased in Morgan Stanley's MSCI indexes. Pakistan's official said it has met all the requirements of the International Monetary Fund for securing a bailout deal of more than $6 billion, sending the country's main stock index up 1% to an all-time high.

Meanwhile, China's blue chip stocks closed 0.2% lower after services activity expanded at the slowest pace in eight months and confidence hit a four year low in June, with investors hoping for more economic stimulus. South Africa's rand strengthened 0.7% and the local all-share index added 1.3% ahead of the swearing-in of President Cyril Ramaphosa's new unity government.

Zambia's kwacha rose 0.9% against the euro. The local finance ministry said the World Bank has approved a $208 million grant to help address the social and economic impact of drought. For TOP NEWS across emerging markets For CENTRAL EUROPE market report, see For TURKISH market report, see For RUSSIAN market report, see

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