WHEN British voters shocked world markets by voting to leave the European Union on June 23, emerging markets assets seemed among the most vulnerable to a full-on retreat to safe havens from riskier investments.

    Yet as investors have realized that the vote and the resulting uncertainty will probably keep the U.S. Federal Reserve on the sidelines at least until December, emerging currencies, stocks and sovereign bonds have stormed higher -- outpacing a wider market bounce-back from the initial Brexit rout.

    MSCI’s emerging equity index is set for its biggest weekly gain since March, while yields on debt denominated in emerging currencies such as ruble and the Brazilian real have fallen as much as 50 basis points over the week.

    “Janet Yellen has made it clear that events outside of the United States will have a bearing on the Fed’s decision making and she was explicit about the risk that she thought Brexit would pose,” said Viktor Szabo, Senior Investment Manager at Aberdeen Investment Management. “This pause from the Fed is going to support emerging markets.”

    Latin American currencies have been particularly well bid, with the Brazilian real near its highest level in almost a year, the Chilean peso at a one-month high and the Mexican peso on course for its best four-day streak since early 2010.

    Underlining the renewed appetite for emerging market assets, Argentina announced Thursday an offer of US$2.75 billion in bonds, just three months after the country’s historic return to the international capital markets.

    Brazilian dollar bonds also saw strong investor demand with JP Morgan’s index tracking the country’s sovereign debt up more than 4 percent since last Tuesday while Mexican debt has gained 3.8 percent.

    The average yield premium demanded by investors to hold emerging debt over Treasuries has fallen by 30 basis points since last Monday.

    To be sure, the rally may not be sustainable. Brazil still faces record deficits and expects to remain in a recession next year while Mexico’s peso had drifted to a record low against the dollar prior to last week’s action. A set of particularly strong U.S. data might also rekindle Fed rate rise expectations, putting emerging currencies under pressure again.

    But for now, investors like what they’re seeing from these assets.

    “Emerging markets are in a good place with ‘one and done’ Fed,” Bank of America Merrill Lynch told clients, referring to the likelihood the Fed will not raise rates again this year.

    Typically, the uncertainty triggered by an event like Brexit would prompt investors to flee riskier emerging market assets, but pessimists may have underestimated the positive effect of increased liquidity in markets.

    Not only have markets effectively priced out a Fed rate rise this year, Bank of England Governor Mark Carney on Thursday signaled more policy easing to counter the negative economic effects of Britons’ vote to quit the EU.

    Expectations of further stimulus are also building in the eurozone, Japan and China.

    Since the Brexit vote more than US$1 trillion worth of bonds have joined the negative-yield club, with more than US$11.7 trillion worth of debt worldwide now estimated to be yielding less than zero.

    (SD-Agencies)