Hong Kong shares jump, broader EM under pressure

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Hong Kong shares touched four-month highs on Wednesday after the city said it would scrap most of its stringent COVID-19 curbs, although the mood across emerging markets was tempered by higher Treasury yields and worries over a ban on Russian oil exports.

With just two more trading sessions left in 2022, market participants were looking warily at the next year after a rough twelve months for developing economies that saw more governments stumble into default, currencies suffer and double-digit losses in stocks and bonds.

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The MSCI’s EM equities index was flat after overnight losses on Wall Street as higher yields hit growth stocks.

In Hong Kong, where traders were returning from their Christmas break, the Hang Seng index closed 1.6% higher after having risen as much as 2.6% to a four-month high earlier in the session.

City leader John Lee said all the COVID measures, apart from the compulsory wearing of masks, would be canceled on Thursday.

Most Asian stocks and currencies rallied on Tuesday following news that China is dismantling most of its COVID rules despite a surge in infections.

However, China’s main equity indexes closed marginally lower on Wednesday and the yuan weakened.

“China easing quarantine rules and more economic support measures should continue to provide support for RMB (renminbi), RMB-linked assets,” Christopher Wong, FX strategist at OCBC wrote in a note.

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“That said, we add a note of caution on the rapid pace of reopening, especially when COVID infection is expected to reach a fresh peak in January. A scenario of fresh COVID wave in other countries or new variant could undermine sentiment.”

In Russia, the rouble slipped 0.3%, extending its losses in December to about 12%, hit by western sanctions on Russian oil.

President Vladimir Putin on Tuesday delivered Russia’s long-awaited response to the Western price cap, signing a decree that bans the supply of crude oil and oil products from Feb. 1 for five months to nations that abide by the cap.

“The ban of exports for nations adhering to Russian price caps adds fuel to the anxieties around supply,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

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“This comes at the same time as China plans to reopen, which means oil demand is set to surge. While supply and demand dynamics continue to compete in this way, the oil price will remain elevated.”

With the dollar on the front foot, the Hungarian forint , the Polish zloty and the South African rand all shed between 0.3% and 0.7%.

Budapest’s bluechip index hit a fresh two-week low, a day after the government imposed a windfall tax on drug producers based on net revenues generated in 2022 and 2023.

Trading volumes were thin across the board, with many traders away for year-end holidays. For GRAPHIC on emerging market FX performance in 2022, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2022, see https://tmsnrt.rs/2OusNdX

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