REUTERS: A bounce in mainland Chinese shares yesterday lifted emerging equities off two-year lows, while currencies also got some respite, including the yuan which steadied slightly after days of volatility.
The Shanghai index rose 6 percent, its biggest percentage gain in six years, as new government support measures curbed selling. Shenzen shares jumped 6.4 percent and Hong Kong rose 4.6 percent.
Those gains lifted MSCI equity index 1.6 percent after its near-5 percent plunge on Wednesday, its biggest one-day loss since June 2013 during the so-called taper tantrum.
Despite the view that the respite was temporary, it offered relief to Asian currencies with offshore-traded yuan steady off four-month lows and implied yuan volatility, a gauge of expected exchange rate swings, easing in the derivatives market having hit six-week highs in the previous session.
Chinese five-year credit default swaps also eased, dropping six basis points to 98 bps, down from 22-month highs, Markit data showed.
“The good news is that we see no macro meltdown (from the stock market falls). The bad news is that this is a huge blow to the reform process,” SEB’s head of Asia strategy Sean Yokota told clients.
Yokota saw widespread contagion and currency instability as unlikely, noting foreigners owned 644 billion yuan worth of Shanghai shares, or 1.6 percent of the market capitalisation.
“There is little risk of foreign capital outflows that make equity selloff lead to currency instability. If your capital account is closed, you don’t need to impose capital controls like Greece,” he said.
In emerging Europe, weighed down by the Greek crisis, there were also gains. The Athens bourse is to remain shut until Monday, but Russian, Czech, Hungarian and Turkish markets all rose about 1 percent.
Currencies across the region also rose, with the zloty and forint up 0.25 percent versus the euro. Dollar-based currencies such as the rand, rouble and lira were up about half a percent.
The picture was less rosy in Poland, where markets are pricing in higher political risk ahead of elections that could see the euro-sceptic opposition take power.
As central Europe’s largest market, Poland is also often used as a proxy for less-liquid Balkan markets such as Romania and Bulgaria which are also more exposed to Greece.
Polish CDS eased slightly from 16-month highs hit on Wednesday but Warsaw stocks were flat near 22-month lows. The index is weighed down by bank shares which have been hit this week by plans to make them shoulder some of the costs of converting Swiss franc debt into zloty debt.
Banks extended losses after falling 4-5 percent on Wednesday, with Getin down 2 percent and PKO falling 0.3 percent.
Commerzbank said Polish underperformance was unsurprising.
“Greece has little direct impact on Poland but potentially much larger indirect impact through broader market spillover,” it said, citing the loan conversion as an additional issue.
“What is clear is that both parties are pushing in the direction of FX loan conversion; hence, there is little sense in hoping for an outcome where banks somehow escape unscathed. Hence, it is a potential negative development for Polish assets.”
Bulgarian stocks fell 0.7 percent to 18-month low.