Rebound Gathers Pace for Emerging Markets

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Emerging markets are taking heart from the re-opening of virus-battered economies around the world while the rate of infections in some countries shows little sign of easing.

Developing-nation stocks and bonds rose for a second month in May and currencies were steady as investors drew comfort from government and central-bank stimulus efforts and optimism a coronavirus vaccine will eventually be developed. JPMorgan Chase & Co.’s measure of implied volatility for currencies has declined for the past five weeks, the longest streak this year.

Purchasing managers’ indexes across emerging markets this week may offer clues to whether economies are turning the corner after easing lockdown restrictions. But the spread of the virus is barely letting up. Brazil now has more cases than any country except the U.S., Russia isn’t far behind, and Mexico had its largest single increase in both cases and deaths last week.

“A more convincing emerging market-specific recovery will likely require clearer signs of being past the worst moments in countries continuing to see rising cases,” said Morgan Harting, a New York-based money manager at AllianceBernstein, which oversees $542 billion in assets. “We’ve started to see some of the more beaten down parts of the capital markets play catch-up and there’s a great deal of focus on how sustained this trend will be and how broadly it’s felt across emerging markets.”

Tension between Washington and Beijing may also weigh on sentiment as the clock ticks down to the November U.S. election, though President Donald Trump stopped short of imposing economic sanctions on China in his speech on Friday. The focus will also be on whether the People’s Bank of China will let the yuan depreciate past the psychologically important 7.20-per-dollar level even after pledging to keep the currency stable during the National People’s Congress, which ended last week.

Manufacturing Data

China’s official manufacturing purchasing managers’ index declined to a worse-than-expected 50.6 in May from 50.8 a month earlierThe data indicate that the nation’s recovery from the pandemic shutdowns risks faltering after an initial rebound supported by pent-up demandThe Caixin gauge on manufacturing will be out on Monday and on services on WednesdayThe offshore yuan briefly touched its record low of 7.1965 last weekA further decline in the offshore yuan will also be negative for emerging market, according to Alexander Wolf, Hong Kong-based head of Asian investment strategy at JPMorgan Private BankAfter factory output across several Asian countries fell to record lows in April, signaling deeper contraction in the world’s manufacturing hub, investors will get another update for May when a slew of countries around the world began resuming economic activityTaiwan, Malaysia, Thailand, Philippines and India will release measures of factory activity on Monday, while Indonesia will report on Tuesday

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