LONDON: Emerging market shares saw their biggest jump in two months on Tuesday, as a small rebound in oil prices and a rally in Chinese stocks drew investors back in after the worst start to a year for the asset class.
The sudden return of risk appetite came despite news China's economy grew at its weakest pace in a quarter of a century last year, though it bolstered hopes of more stimulus from Beijing as well as there being relief the data was not worse.
MSCI's 23-country emerging market stocks index leapt 1.6 percent in its biggest rise since mid November, while battered currencies from Shanghai to South Africa also saw gains.
The surge in shares was led by a 3-3.25 percent rise in Chinese bourses, 3-4 percent jumps in Russia and even bigger 3.5 and 5 percent rallies in Saudi Arabia and Qatar as oil prices bounced back towards $30 a barrel.
"The China data in the best case is neutral so the rebound in oil is probably the more relevant factor," said Cristian Maggio, head of emerging markets strategy at T.D. Securities in London.
"The reality is the year started in a very negative mood," he added. "So I wouldn't take this (rebound) as a sign the market has turned to risk supportive from risk adverse, it is still going to remain very volatile."
The other big focus was a meeting of Turkey's central bank later amid concerns that the government continues to lean on its policymakers to keep rates down despite inflation of nearly 9 percent.
The decision is due at around 1200 GMT. All but one of the economists polled by Reuters expect its main repo and overnight lending rates to be maintained, though there will be close scrutiny of what it signals, particularly on a long-promised simplification of its range of policy rates.
"Inflation came out at 8.9 percent at the end of last year and they have just hiked minimum wages and raised civil sector pay so there are some inflation shocks still to come there," said Manik Narain, an emerging market economist at UBS.
"The market really does want to see them making greater strides (in tackling inflation) now, so we really need to hear something from the central bank."
The lira, which has been the main driver in the inflation spike having slumped roughly 25 percent over the last year, stood a touch firmer at 3.0230 per dollar, with stocks in Istanbul underperforming, up by a modest 0.8 percent.
In an interview with Reuters on Monday, Deputy Turkish Prime Minister Mehmet Simsek said he saw no reason for any significant further drop in the lira, though he acknowledged global emerging markets faced another year of painful adjustment.
Polish stocks rose over 2 percent as their recovery from Friday's shock sovereign rating cut continued.
Overnight, most emerging Asian currencies from Malaysia to India had edged up, buoyed by the fact China's economic growth data held no nasty surprises.
One outlier was the Hong Kong dollar, however, which hit four-year lows as it fell sharply for a fourth straight session as the recent volatility in the Chinese yuan spilled over to the former British colony.
Under a three-decade old currency peg regime, the value of the local currency can fluctuate within a 7.75 to 7.85 band.
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