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Rand leads emerging market rebound after Trump and Brazil worries

The rand led a rebound in emerging market currencies on Friday morning, beginning to recover after political worries in the US and Brazil caused sharp falls yesterday.

Emerging markets suffered earlier in the week as the escalating political storm around the Trump administration’s ties to Russia dampened investor appetite for risky assets.

The declines were exacerbated by developments in Brazil, where news that president Michel Temer had been caught up in a bribery scandal caused hit the real and stocks.

The developments in Brazil highlighted the impact political risks can have on EM assets, but investors were feeling slightly less pessimistic by Friday. The rand climbed around 1 per cent to 13.29 per dollar, while the Turkish lira was up 0.7 per cent.

Contagion from Brazil extended into Asian currencies overnight but had faded by Friday lunchtime. The Korean won touched 1130 per dollar in the early hours of Friday, but by publication time it had reversed its losses to be 0.74 per cent stronger for the day. The Indonesian rupiah also reversed early losses, boosted by an upgrade from ratings agency S&P.

However, Win Thin, head of emerging markets strategy at BBH, was sceptical about whether the rebound will last.

In a note on Thursday evening Mr Thin wrote that “EM was due for a correction” after rallying strongly in recent weeks. Speaking on Friday, he added that “we need to see another couple of days of price action to see how things shake out”, but said “markets remain too sanguine with regards to risk”.