LONDON: Russian stocks and bonds rallied on Tuesday as the US held off imposing fresh sanctions, though geopolitical tensions remained high and forecast-beating Chinese data did little to cheer markets with emerging stocks trading at one-week lows.
Russian stocks bounced 1.7 percent, Russian sovereign dollar bonds rose across the curve, and five-year credit default swaps fell after the US delayed imposing additional sanctions on Russia.
Russian assets suffered last week after the US administration slapped sanctions on a number of Russian businessmen and their companies.
"Some of the price action looked like an over-reaction, for example in the Russian bonds, so you get people buying it back," said Koon Chow, a strategist at UBP, who expects Russian assets to keep strengthening from here.
"If anything, the geopolitical developments will strengthen Russian policymakers' resolve to run a very conservative economic policy, which means your economy is less vulnerable to geopolitical-related developments."
The rouble remained volatile, weakening 0.8 percent after firming in early trade. US President Donald Trump has accused both Russia and China of devaluing their currencies while the US raises interest rates. Russia's central bank said it would not intervene in currency markets following the rouble's sharp fall last week.
Broader emerging markets also remained under pressure as geopolitical tensions dampened overall risk appetite.
MSCI's benchmark emerging stocks index fell 0.4 percent , with the United States and Britain blaming Russia for cyber attacks and the US accusing Russia or Syria of blocking international inspectors from reaching the site of a suspected poison gas attack in Syria.
Chow said geopolitical events and trade tensions increased the probability of tail risk events that could harm global activity and emerging market exports, and were making investors cautious.
"But they don't alter the central scenario, which is that emerging market growth is still pretty solid and improving," he added, flagging China's continued resilience.
China's economy grew by 6.8 percent in the first quarter of 2018 from a year earlier, unchanged from the previous quarter, and slightly above expectations.
But March industrial output missed expectations and first-quarter fixed-asset investment growth slowed.
China's yuan was steady but mainland stocks fell 1.5 percent to near eight-month lows, and Hong Kong shares fell 0.8 percent as trade tensions between China and the US lingered.
The US Department of Commerce has banned US companies from selling components to Chinese telecom equipment maker ZTE Corp for seven years, US officials said on Monday. ZTE's shares were suspended from trading in Shanghai and Hong Kong.
In emerging Europe, Turkish stocks led the selling, down 1.3 percent, while the lira weakened 0.4 percent.
Earlier in Asia, the Hong Kong Monetary Authority intervened again in the currency market as the Hong Kong dollar repeatedly hit the lower end of its allowable trading band.
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