Emerging market stocks hit a record high on Monday, while currencies in Europe, Middle East and Africa were pressured by a dollar rebound on renewed coronavirus fears and a spike in U.S. treasury yields.
The MSCI’s index of EM equities rose more than 0.2%. Expectations of increased U.S. stimulus and accommodative monetary policy outlook in the mid-term has pushed investors into equities.
But in currency markets, traders were concerned that a new variant of the coronavirus, discovered in Europe and Africa, could prompt another wave of lockdowns and disrupt the global economic recovery. A second wave of global infections also kept sentiment subdued.
Adding further pressure, the dollar continued to recover from 2018 lows as expectations of increased U.S. debt issuance to finance President-elect Joe Biden’s stimulus agenda pushed up longer-term treasury yields.
Increased U.S. lending rates benefit the dollar and usually prompt capital flows out of emerging markets.
South Africa’s rand was among the top percentage losers in the EMEA region, falling more than 1% after shedding over 4% last week.