Emerging stock rally stalls after setback to Iran accord hopes

Emerging-market stocks snapped a week-long rally and most currencies weakened as renewed strikes on Iran dashed hopes of a swift resolution to the war.

MSCI’s emerging equity gauge was down 0.% as of 10:20 a.m. in London, having lost as much as 2.3% earlier when Asian equities retreated from record highs. Indexes in Johannesburg, Prague and Budapest also slipped, as oil prices rebounded after the airstrikes, which highlighted the fragility of the ceasefire and the challenge of restoring global energy flows.

Currencies of oil-importing nations slipped, with the related MSCI index down 0.1%. Even if the US and Iran reach an agreement, uncertainties related to oil flows will remain for a while, Commerzbank AG warned.

“Given the low level of trust between the two sides, it will likely take some time before we see a real normalisation – and with it, the foreign exchange markets stabilising again,” Commerzbank currency analyst Michael Pfister said.

The South African rand slipped as much as 0.7% against the dollar, while 10-year government bond yields climbed about four basis points ahead of a central bank meeting that is expected to deliver the first interest-rate hike in three years. Rates are seen rising by 25 basis points to 7%.

The forint led losses in eastern Europe, given Hungary’s exposure to energy-price swings. Investors will be watching Prime Minister Peter Magyar’s talks in Brussels this week, including a crucial meeting with European Commission President Ursula von der Leyen to restore billions of euros of funding from the bloc.

In fixed income, Amundi SA cut its overweight position in Chinese bonds to neutral after a rally that made the market one of the few to outperform amid a global debt selloff.

Elsewhere in Asia, bond yields generally rose and currencies weakened. There are also increasing signs authorities are being forced to react to the funding stresses caused by the Iran war, with South Korea’s new central bank governor signalling a hawkish policy shift.

South Korea also plans to reduce bond issuance in June by over a fifth compared to the previous month to help rein in yields, which rose last year to late-2023 highs. The cutbacks are expected in the longest maturities. Indonesia and Thailand, too, are stepping up issuance of short-term debt, while Indonesia’s central bank is selling more rupiah bills to attract foreign inflows to support the currency.

On the issuance front, the Federation of Bosnia and Herzegovina, the Muslim-Croat entity within the Balkan nation, is offering a benchmark five-year euro-denominated bond in a deal that may price on Thursday, according to a person familiar with the matter who asked not to be identified.

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