EMERGING MARKETS-Asian assets bask in the afterglow of Powell's comments; EM stocks at over three-year high

By Pranav Kashyap

Aug 21 (Reuters) - Emerging market stocks took off on Monday, sending a key equities gauge to its highest since November 2021, as Federal Reserve Chair Jerome Powell's dovish speech buoyed Asian assets.

The MSCI gauge for equities in emerging markets .MSCIEF jumped 1.5%, heading for its strongest daily jump in nearly two weeks, while its currencies counterparts .MIEM00000CUS edged up 0.3%.

Chinese equities outperformed, with the blue-chip index .CSI300 up 2.1%, at a more than three-year high, and the Hong Kong's Hang Seng .HSI rose 1.9% to its highest level in nearly four years.

Most EM stocks hugged tight ranges whole of last week as investors waited on Jerome Powell's word at Jackson Hole.

Powell's dovish nod improved sentiment, with markets wagering an 87% chance of a quarter-point cut on Sept. 17, as per CME's FedWatch tool and 53.3 basis points of cumulative reductions by year-end, according to LSEG.

The U.S. dollar =USD struggled to recover from a four-week low on the day. USD/

"Soft landing rate cuts have historically been positive for stocks, and the Fed's shift from restrictive to more neutral policy should help extend the bull market, even if earnings growth for cyclicals remains uneven," UBS analysts said.

"We expect Powell to advocate for easing at the September meeting unless incoming data, such as a strong August labor report or higher-than-expected inflation, provide reason to stay on hold."

As the Fed shifts toward a more accommodative stance, coupled with the greenback softening, investors could recalibrate their exposure to currency carry trades amid shifting expectations around U.S. monetary policy. With signs of improving global risk appetite, emerging market currencies could once again come in focus.

The Malaysian ringgit MYR= was on course for its strongest intraday gain in nearly a month, while the Indonesian rupiah IDR= ticked up 0.5% and was poised to gain the most in a day in nearly two weeks.

Meanwhile, equities in Turkey .XU100 rose as much as 1%, touching a record high. The benchmark index was also set to log its longest daily winning streak this year. Data showed Business confidence among Turkish manufacturers rose to 100.6 points in August.

Stocks in Central and eastern Europe were relatively muted compared to Asia. A gauge tracking the regions' equities .MIME00000PUS edged up 0.2%. Only Polish stocks .WIG20 advanced, gaining 0.8%.

Ukraine's international dollar bonds were mixed as lack of clear signs that the conflict was nearing an end dented sentiment.

U.S. Vice President JD Vance said Russia has made "significant concessions" toward a negotiated settlement in its war with Ukraine and was confident progress was being made.

Elsewhere, Vietnamese equities .VNI dropped to a near two-week low, falling nearly 2%. The country prepared for the most powerful storm so far this year and has shut down airports, closed schools, and begun mass evacuations.

Meanwhile, global credit ratings agency S&P upgraded Kenya's long-term sovereign credit rating to 'B' from 'B-' on Friday, citing reduced near-term external liquidity risks.

HIGHLIGHTS

** Singapore's core inflation rises 0.5% y/y in July, lower than poll forecast

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