Rally in Emerging Europe markets has further to run

The positive news on COVID-19 vaccines has provided a boost to the region’s economic outlook and this has underpinned a rally in local financial markets. The general improvement in risk appetite and the “rotation” back towards energy and financials has seen local equity markets outperform the emerging and advanced economy benchmarks and this trend is likely to continue. At the same time, local currency and dollar bond yields have dropped back while currencies have appreciated. In Turkey, the market rally has been given a further leg up by the shake-up of the economic management team and signs of a shift to orthodox policymaking. Meanwhile, a stronger currency will ease pressure on Hungary’s central bank to tighten policy further and will pave the way for Russia’s central bank to resume its easing cycle next year.