EMERGING MARKETS-Indonesia, Russia gains push emerging stocks to new 17-mth high

Wed Jul 23, 2014 10:11am GMT

By Chris Vellacott

LONDON, July 23 (Reuters) - Emerging equities hit new 17-month highs on Wednesday, buoyed by strong post-election gains in Indonesia and a rise in Russian stocks after a conciliatory tone from the Kremlin over the downed Malaysian Airlines jet.

A batch of positive earnings in Europe and the United States along with robust U.S. economic data have lifted sentiment and somewhat offset potential geopolitical repercussions from last week's shooting down of a Malaysian Airlines plane over eastern Ukraine.

Political developments within emerging markets have also helped, with Indonesia declaring reform-minded Joko "Jokowi" Widodo as the winner of its presidential election. Jakarta shares rose nearly 1 percent while the rupiah set a two-month high.

"This is positive news, when both the equity markets and the rupiah strengthen. As per volatility and return potential versus its EM peers, (Indonesia) offers the best carry return," said Tanya Rawat, analyst at Arqaam Capital in Dubai.

The cost of insuring Indonesian sovereign debt against default dropped on Wednesday with five-year credit default swaps dropping to 143 basis points from 149 bps on Tuesday, according to financial data provider Markit.

The Indonesian result also means this year's hectic election cycle in emerging markets is continuing on a positive note after the win of another reform-minded leader in India, analysts say.

Brazilian equities had hit 16-month highs on Tuesday as polls showed left-leaning President Dilma Rousseff continuing to lose popularity, boosting the chances of a more reformist government after October elections.

Those gains have boosted MSCI's emerging market equity index to levels last seen in early 2013 for year-to-date gains of 7.6 percent, on a par with Wall Street.   Continued...

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