Sept. 10 (Reuters) – Emerging market stocks were expected to post a six-day loss on Thursday to track gains on Wall Street as the Russian ruble investigate alleged poisoning of Kremlin critic Alexei Navalny amid looming sanctions and mounting pressure , gave in.
When the European Union tries to impose sanctions on Russia, Italy said Russian President Vladimir Putin has agreed to set up a committee to investigate Navalny’s disease. One report said Navalny had made further progress in his recovery and was now able to speak again.
Foreign investors recently cut investments in Russian markets, a deputy central bank governor said, but strong demand for government bonds has helped the ruble rebound from recent lows.
The currency fell slightly against the dollar on Thursday, most recently trading at 75.59. Wednesday’s data showed that the Russian economy contracted 8% annually for the second quarter, despite the central bank saying the active period of economic recovery was over and anticipating a slowdown.
ING pointed out that private capital flows have not improved significantly as local actors did not support the ruble.
“As a result, the dollar-ruble pair is exposed to volatility and the fate of the recovery rests in the hands of external factors, including a normalization of the foreign policy backdrop, a stabilization of oil prices and continued weakness of the dollar worldwide,” said Dmitry Dolgin, chief economist ING Bank in Moscow.
As the euro climbed in anticipation of a European Central Bank meeting later in the day, the dollar fell. However, emerging market currencies were reluctant to capitalize on the weakness of the greenback.
South Africa’s rand fell 0.5% on Wednesday after rising sharply. Markets will now monitor current account records and mining and production data later in the day for further clues about the standing of the economy hit by the recession.
The Turkish lira rose marginally, attempting to post gains for the first time since August 28, while the currencies of emerging markets in Central and Eastern Europe slipped against a stronger euro.
Emerging market stocks, meanwhile, rose 0.7%, but cut some gains as optimism about a Wall Street rally faded.
Rising corona cases in some countries and a halt in the development of a potential vaccine have drawn investors as they prepare for an extended period of economic hardship.
Hungary’s major stock index fell 0.7% after the central bank announced a slower economic recovery after a pandemic-triggered slump.
For GRAPHICS on emerging markets FX performance 2020 see tmsnrt.rs/2egbfVh. GRAPHIC for the performance of the MSCI Emerging Index 2020 see tmsnrt.rs/2OusNdX
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For the Russian market report see (Reporting by Susan Mathew in Bengaluru; Editing by Amy Caren Daniel)