LONDON, Feb 26 (Reuters) - Russian assets leapt on Monday, with stocks hitting an all-time high and sovereign dollar bonds and the rouble at near one-month highs after S&P raised Russia's rating to investment grade.
Emerging stocks rose to a three-week high.
Moscow's rouble-denominated shares rose over 1 percent and the dollar-denominated index leapt over 2 percent after ratings agency S&P Global raised Russia's foreign currency long-term and short-term sovereign credit ratings to investment grade on Friday.
Fitch also has an investment grade rating on Russia, which it left unchanged late on Friday.
Market players expect demand for Russian state bonds to increase as major international funds require two investment grades as a minimum to invest in a country's financial instruments.
Russia's sovereign dollar-denominated eurobonds rose across the curve, with the 2043 issue up 1.4 cents according to Tradeweb, a near one-month high.
The average yield spread of Russian sovereign bonds over U.S. Treasuries on the JPMorgan EMBI Global Diversified index also fell 8 basis points (bps) to 146 bps, the lowest since Feb. 2.
The rouble firmed 0.6 percent to a near one-month high and Russian five-year credit default swaps fell 5 basis points (bps) from Friday's close to 103 bps, a near one-month low.
William Jackson, senior emerging markets economist at Capital Economics, said he was not that surprised by the decision to upgrade Russia.
"The general view in the market is that Russia's balance sheets have been strong enough to justify a better rating than it had. To a large extent markets were priced for that, but the move is positive given the fall in oil prices," he said.
Brent crude futures were 0.3 percent down in early trade at around $67 a barrel.
Elsewhere, MSCI's benchmark emerging equities index was up 0.5 percent to a three-week high, tracking gains in developed markets after a rally on Wall Street on Friday.
Yields on U.S. 10-year Treasuries had also backed off to 2.85 percent and away from a four-year top of 2.957 percent.
This helped Asian markets such as China to put in a strong performance, with mainland blue-chips up over 1 percent . Hong Kong shares also rose 0.7 percent to a three-week high.
The yuan firmed 0.4 percent to a two-week high underpinned by a firmer official yuan midpoint, the pull-back in U.S. bond yields and renewed corporate sales of the greenback.
China's ruling Communist Party on Sunday set the stage for President Xi Jinping to stay in office indefinitely, with a proposal to remove a constitutional clause limiting presidential service to just two terms in office.
Alex Wolf, senior emerging market economist at Aberdeen Standard Investments, said that while the system was more opaque and unpredictable than it had been in a long time, Xi now had the ability to focus on long-term structural challenges.
"So far, many difficult reforms have been ignored due to institutional constraints," he said, highlighting local government fiscal reform, pension and healthcare system reform, and land reform as areas that might now be addressed.
Indian shares rebounded almost 1 percent, continuing to make up ground following a recent sell off triggered by worries over the broader implications of a $1.8 billion alleged fraud at Punjab National Bank..
Emerging Europe also put in a solid performance with Turkish and Polish stocks up 0.7-0.8 percent.
In currencies, the South African rand hit a three-year high in early trade before giving up some gains, amid talk that President Cyril Ramaphosa was likely to announce a new cabinet this week.
For GRAPHIC on emerging market FX performance 2018, see http://tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2018, see http://tmsnrt.rs/2dZbdP5
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Equities Latest Net Chg % Chg % Chg
Emrg Mkt Indx 1223.19 +6.76 +0.56 +5.59 Czech Rep 1106.80 +1.84 +0.17 +2.66 Poland 2425.29 +19.18 +0.80 -1.46 Hungary 38390.44 +150.35 +0.39 -2.51 Romania 8360.11 +3.98 +0.05 +7.82 Greece 840.61 -3.51 -0.42 +4.77 Russia 1324.92 +23.91 +1.84 +14.77 South Africa 52015.24 +268.09 +0.52 -0.99 Turkey 18332.02 +810.53 +0.69 +2.60 China 3330.25 +41.23 +1.25 +0.70 India 34437.51 +295.36 +0.87 +1.12 Currencies Latest Prev Local Local close currency currency
% change % change
Czech Rep 25.37 25.34 -0.10 +0.62
Poland 4.17 4.17 +0.04 +0.11
Hungary 313.17 313.04 -0.04 -0.84
Romania 4.66 4.65 -0.11 +0.43
Serbia 117.96 117.91 -0.04 +0.37
Russia 55.91 56.27 +0.64 +3.13
Kazakhstan 319.21 319.96 +0.23 +4.26
Ukraine 26.99 26.95 -0.16 +4.27
South Africa 11.55 11.54 -0.07 +7.01
Kenya 101.65 101.80 +0.15 +1.43
Israel 3.49 3.48 -0.05 -0.25
Turkey 3.78 3.79 +0.32 +0.34
China 6.30 6.33 +0.46 +3.21
India 64.72 64.70 -0.03 -1.38
Brazil 3.24 3.24 +0.00 +2.31
Mexico 18.62 18.53 -0.48 +5.54
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 312 1 .05 7 89.35 1
(Reporting by Claire Milhench; Editing by Angus MacSwan)