(Bloomberg) Emerging-market currencies’ benchmark index has risen to the highest in eight months, thanks to a growing optimism of limited geopolitical risks from Russian-Ukraine tensions.
South Africa, which is considered a bellwether for emerging-market risk, is the best performer so far this month in the local-currency debt market, generating returns in excess of 6%.
On Monday, reports of a proposed talk between Moscow and Washington saw most emerging market currencies rise.
The continued gains in emerging markets have seen analysts point out that the Ukraine crisis has little impacts on those markets. Societe Generale analyst Phoenix Kalen says emerging markets have been relatively resilient amid the Russian and Ukraine tensions.
Kalen further notes that Russian and Ukraine tensions have posed limited contagion risks in the emerging markets through the investor sentiment channel.
As Wall Street keeps a close eye on the developments between Russia and Ukraine, some analysts point out that moves by the Fed and other key central banks to tighten policy may rattle markets.
Brandywine Global Investment Management portfolio manager Jack McIntyre opines that the emerging markets have priced for a significant amount of adverse news in the last ten years. He says even moves by major central banks to tighten policy would have little impact on repricing.
Analysts still warn that deeper geopolitical risks exist, with severe military conflict likely to shock global markets. Potential risk in oil prices if Russia invades Ukraine is also seen to impact emerging market players.
