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Emerging-market assets advance on stimulus optimism

Singapore - Emerging-market assets rose for the first time in three days as the prospect of stimulus measures from South Korea and Japan helped ease concern a U.K. exit from the European Union will slow global growth.

The rand, Polish zloty and Indonesian rupiah led currency gains after Korea announced a stimulus package of more than 20 trillion won.

The Nikkei newspaper reported a similar plan has been proposed in Japan. A gauge of developing currencies also climbed from a three-week low as traders cut bets that the Federal Reserve will raise US interest rates this year. Emerging-market stocks headed for their biggest gain in a week.

“The economic spillover is still perceived as being limited and hence growth within emerging markets should continue to hold up,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore. “Right now, the market expects the Fed to keep rates on hold for the rest of this year, and that itself is negative for the US dollar and positive for emerging-market currencies.”

The MSCI Emerging Markets Currency Index rose 0.5% to 1 497.70 as of 09:48. It had tumbled 1.9% during the previous two days following the British vote to exit the EU in the June 23 referendum.

The rand surged 2.1%, the zloty climbed 1.2% and the rupiah rose 1.2%. The Korean won appreciated 1%.

Korea’s package will include an extra budget of about 10 trillion won that mainly would be used to create jobs and support regional economies, according to government statements. The Nikkei reported a 20 trillion yen package has been proposed in Japan.

The rupiah headed for its biggest advance in three weeks as the Indonesian parliament approved a tax amnesty that the government said will draw in billions of dollars needed to finance a widening budget.

The currency’s gain means it has more than recouped its loss of 0.9% on Friday following the UK referendum.

Traders cut the odds of a US rate increase by December 31 to just 8%, from a probability of 74% at the end of last month, according to data compiled by Bloomberg based on fed fund futures. The chance of a rate cut by year-end is now 20%.

Stocks

The MSCI Emerging Markets Index of shares gained 0.9% after slumping 4.9% during the previous two days. It is on course for its biggest gain since June 20.

Benchmark indices rose 1.8% in the Czech Republic, 1.7% in Hungary and 1.3% in Poland. In Asia, stock gauges in China and Taiwan both rose 0.6%.

“Brexit’s impact on Asia should be limited to companies with exposure to England,” said Rafael Palma Gil, who helps manage about $1.8bn as a trader at Rizal Commercial Banking in Manila.

“There is enough room for Asia to respond with a stimulus package should global growth weaken from the Brexit fallout. Asian markets are in relatively better shape to ride rising volatility."

Taiwan Semiconductor Manufacturing, was the biggest contributor to the gains in the emerging markets gauge, rising 1%. Indonesia’s PT Astra International Tbk jumped 4.5%.

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