Emerging Markets Rally on Iran's Proposed Nuclear Deal Amid Low Trading Volumes
Emerging Markets Advance in Thin Holiday Trading
In a relatively quiet trading session, emerging-market benchmarks for stocks and currencies saw gains on Friday, driven by a new proposal from Iran delivered to the US via Pakistan. This development pushed crude oil prices lower, contributing to a 4.4% decline in oil prices for the day.
The MSCI Emerging Markets Index ended the day 0.1% higher, with significant contributions coming from United Arab Emirates stocks, including First Abu Dhabi Bank PJSC and ADNOC Drilling Co.. A rise in the Hungarian forint and Polish zloty also helped push the EM currency index 0.1% higher. The Mexican peso and South African rand, often seen as bellwethers for risk appetite, both strengthened against a weaker dollar.
| Market | Index Change |
|---|---|
| MSCI Emerging Markets Index | +0.1% |
| Hungarian Forint vs. USD | +0.3% |
| Polish Zloty vs. USD | +0.2% |
| Mexican Peso vs. USD | +0.1% |
| South African Rand vs. USD | +0.1% |
Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
Oil prices moved lower on Friday, paring the week's advance amid hopes for a deal to end the Iran war. Traders also assessed the latest US data, which showed higher input prices and weakened employment. Most markets in Asia, Latin America, Europe, and Africa are closed for Labor Day, contributing to the thin trading.
Despite lingering geopolitical risks, emerging-market assets are expected to remain bullish over the medium-term. Equity valuations and carry trades are driving investor optimism, with earnings estimates for the MSCI index at a record high. Analysts have upgraded their target level for the gauge 12 months from now to a record, implying a 22% gain by April 2027.
Inflows to emerging-market bond funds continued this week, despite the Strait of Hormuz staying shut. In currency markets, the forint gained 0.3% against the dollar and the zloty advanced 0.2%. Hungary has released previously undisclosed details of a €1 billion ($1.2 billion) loan that outgoing Prime Minister Viktor Orban's government took from China in 2024.
Barclays strategists recommend closing long positions in the lira as the rise in oil prices threatens to widen Turkey's current account deficit and undermine the currency's outlook.
Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline
Investor Takeaway
Investors should be cautious of thin trading volumes and potential market volatility.
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