LONDON: Emerging market equities were set to end May with a fifth straight month of gains on Wednesday while most currencies advanced against the dollar, supported also by new data showing brisk Chinese factory activity.
MSCI's emerging equity index softened slightly on the day, but is up around 3.4 percent in May, having added 17 percent so far this year.
Currencies were mixed on the day but also painted an upbeat picture in May, with Mexico's peso, South Africa's rand , Russia's rouble and the Turkish lira all on track to end the month stronger against the dollar. The greenback racked up its fourth straight month of gains.
Emerging markets have found support from the dollar rally running dry as most investors no longer believe US President Donald Trump will be able to deliver on ambitious plans for tax cuts and infrastructure spending.
"US inflation has been slowing, the whole Trumpflation trade has been completely taken out...and the market is judging that you will not get much done on reforms in the US, on health or tax or infrastructure," said Kaan Nazli, senior economist emerging markets debt at Neuberger Berman.
"That is supporting emerging markets in a sense that their central banks are still supportive rather than having to face too much tightening from the US Federal Reserve and trade wars or such."
Nonetheless, emerging markets were still vulnerable to a slide in oil in the medium term, said Nazli.
Crude prices fell more than 1 percent on Wednesday on oversupply worries. Both oil and copper prices headed for a third straight month of losses.
However, investors welcomed the latest data from China, taking it as a sign that world's second-biggest economy is not losing too much steam after a solid first quarter.
Activity in China's manufacturing sector grew at 51.2 in May - the same pace as in April - thanks to robust construction and infrastructure investment.
"Looking ahead, however, we suspect that the current stability of growth will prove temporary," Capital Economics wrote in a note to clients.
"With the regulatory crackdown on financial risks still weighing on credit growth, it will be difficult to avoid a further slowdown in the coming months."
Meanwhile, China's yuan surged to the strongest level in more than six months, with the central bank now seen less inclined to allow marked currency depreciation.
China is also changing how it calculates the yuan's guidance rate for the second time this year as it steps up efforts to stabilise the currency and reduce price swings.
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