EMERGING MARKETS-Stocks and FX advance with Brazil election in spotlight

By Reuters News

By Johann M Cherian

- Equities and currencies edged higher across most major emerging markets on Monday with the focus on Brazil after right-wing Senator Flavio Bolsonaro took the lead in the first round of pivotal presidential elections over the weekend.

Bolsonaro's stronger-than-expected performance was expected to boost currency and stock markets in Brazil, where some analysts have raised concerns about the management of public finances under incumbent President Luiz Inacio Lula da Silva.

The German-listed Xtrackers MSCI Brazil UCITS exchange traded fund shot up 16% to a record high, while US-listed shares of Brazilian oil company Petrobras rose 9.4% in premarket trading.

Those of Brazilian lender Itau Unibanco and aircraft maker Embraer lifted 8.4% and 5.3% respectively.

Bolsonaro's performance "and the rightward shift in Congress should support the (real) and the Ibovespa and put downward pressure on longer-term yields," Andrés Abadía, chief LatAm economist at Pantheon Macroeconomics, said.

"Brazil's next president will inherit rising mandatory spending, high debt-servicing costs and limited budget flexibility. Sustaining any initial rally will require a credible plan for the public finances," Abadía added.

More broadly, MSCI's index tracking emerging markets .MSCIEF rose 1.2% to a one-week high, boosted by Taiwanese equities .TWII that hit a record high.

MSCI's EM currencies index inched up 0.2%, aided by a dip in crude prices, and as investors priced out the likelihood of a Federal Reserve interest rate hike in October.

Data showed oil exports from the Middle East rose above pre-war levels in the final days of September. However, with the conflict far from resolved, Brent crude prices were still at $101 a barrel.

Investors were also monitoring developments in Turkey following last month's investment scandal that roiled financial markets.

The benchmark Turkish index .XU100 inched up 2%, but was not far from the nine-month low it hit in late September, while the banking index .XBANK climbed 3.7%.

Sentiment was buoyed by the decision by Turkey's Capital Markets Board to extend the lowering of the minimum equity maintenance requirement for margin trading transactions until October 30.

JPMorgan said the recent scandal in country's investment funds sector brought "meaningful downside risks" to the country's economic growth, making it the first major Wall Street bank to flag the impact.

Developments on the trade front were also looking bleak after India said deal talks with the United States reached a plateau, with further concessions appearing to be difficult.

The rupee hovered at 96.29 per dollar, while equities .NSEI, .BSESN were marginally higher, limited by HDFC's HDBK.NS 2% drop, as investors weighed the impact of leadership change at the country's largest bank.

Traders were also eyeing what could potentially be the market's largest public debut with Jio Platforms looking to raise about $3.8 billion later this month, sources told Reuters.

Elsewhere in South Asia, the International Monetary Fund reached a staff-level agreement with Sri Lanka, unlock financing of about $345 million. Hard-currency bonds , were broadly steady.

Focus later this week will shift to central bank policy decisions out of India, Romania and Poland among others. The leu and zloty were marginally higher.

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