EMERGING MARKETS-EM assets kick off the week higher; Czech elections on radar

By Nikhil Sharma

Sept 29 (Reuters) - Emerging market stocks rebounded more than 1% on Monday and currencies strengthened against a soft dollar, while the Czech crown came under pressure as investors braced for a general election later this week.

The MSCI index of emerging market equities .MSCIEF jumped 1.1% following a 1.35% plunge on Friday as investors cashed in profits as they approached the month-end.

EM stocks have jumped about 6.5% in September so far, outpacing Wall Street's benchmark S&P 500 index .SPX that has managed a gain of 2.8%.

A gauge of regional currencies .MIEM00000CUS rose 0.25% after declining for seven straight sessions - its longest such streak since July.

The currency index capitalised on a weaker dollar =USD as investors feared a potential U.S. government shutdown if the Congress fails to pass a funding bill before the fiscal year ends on Tuesday.

Without passage of funding legislation, parts of the government would close on Wednesday, the first day of its 2026 fiscal year.

Meanwhile, the Czech crown EURCZK= slipped 0.24% on Monday and equities in Prague .PX rose 0.4% as investors geared up for this week's parliamentary election, with the opposition ANO party of former Prime Minister Andrej Babis leading opinion polls ahead of the main centre-right ruling parties.

While no party is seen winning a majority, a possible ANO-led coalition could stall defence supplies to Ukraine, reject the EU emissions-allowance system, and increase state control over public broadcasters by placing them on direct state-budget funding.

"The perception of each market, each country, each economy in Eastern Europe is very much dependent on what happens on the political front in each country, which affects the flow of European funds in the particular country," said Elena Loven, senior portfolio manager, EM equities at Swedbank Robur.

"If you look at what happened in Poland, we clearly underestimated the opposition. We don't want to make the same mistake in the Czech Republic. You have to take risk into account as an investor and be aware that elections are always a risk and a possibility."

Meanwhile, Polish stocks .WIG20 added 0.1%, taking their monthly gains to 1.5% so far - among the top performers from the region. The zloty EURPLN= was trading 0.2% lower and was up 0.2% month-to-date.

Stocks recovered in September after MAGA-allied President Karol Nawrocki took office last month, underscoring a deepening political divide that led to Poland's rating outlook being revised to "negative" on concerns about public finances.

Last week, the Czech National Bank voiced the need for a tighter monetary policy to combat inflationary risks, keeping rates unchanged for the third time in a row.

In Russia, the rouble RUB= strengthened 0.6% against the dollar. The country is expected to submit its draft budget to parliament later in the day as the economy explores ways to make ends meet in the fourth year of its war in Ukraine.

The finance ministry last week proposed an increase in value-added tax to fund military expenditure and curb a swelling budget deficit.

Russia amped up its attacks on Ukraine as a weekend strike at Kyiv and other parts killed at least four people and injured dozens.

Elsewhere, Israel's shekel ILS= surged to an eleven-week peak against the dollar, and Tel Aviv stocks .TA125 extended their winning streak for a third straight session on renewed optimism over a potential ceasefire in Gaza after U.S. President Donald Trump disclosed receiving a "very good response" to his proposed peace plan.

The Bank of Israel will announce its interest rate decision later in the day.

In other news, S&P upgraded Morocco to investment grade on Friday. The Moroccan dirham MAD= was largely steady.

For TOP NEWS across emerging markets nTOPEMRG

For CENTRAL EUROPE market report, see CEE/

For TURKISH market report, see .IS

For RUSSIAN market report, see RU/RUB