By Avinash P

June 15 (Reuters) - Emerging market assets rallied on Monday as global risk appetite surged following a preliminary pact between the U.S. and Iran to end their three-month conflict.

The agreement, confirmed by U.S. President Donald Trump on Truth Social, will reopen the vital Strait of Hormuz, sending oil prices down nearly 5% to three-month lows.

The reopening of the critical artery of energy supplies is expected to ease the inflation fears that had recently forced global central banks to tilt more hawkish.

"Financial markets have had opportunities to react to this kind of deal on several occasions already," said analysts at ING.
"The bigger reaction could come at the short end of yield curves, where central banks have had to clear up the inflationary mess left by the energy spike in April and May."

MSCI's gauge tracking EM stocks .MSCIEF gained 2.8%, while the corresponding currencies index .MIEM00000CUS was up 0.3%. Markets had rallied on Friday after signs of an imminent peace deal were touted.

BOND MARKETS REBOUND

With inflation fears cooling, international bonds issued by frontier markets rallied sharply, with many recovering to pre-war levels.

Energy-dependent nations saw the largest gains. Sri Lanka's 2038 bond jumped over 2 cents to trade just above 99 cents on the dollar, while Egypt's debt rose 1.8 cents. Kenya and Pakistan both gained over a cent, while Middle Eastern debt also ticked up.

In Asia, equity gains were led by heavyweights South Korea .KS11 and Taiwan .TWII, which advanced 5.2% and 2.8%, respectively. Both bourses are among the best-performing markets this year, boasting gains of more than 100% and 50% year to date, respectively, fuelled by an eye-popping AI rally.

Taiwan's central bank is expected to hold its policy interest rate steady this week and keep it in place into 2027, according to economists polled by Reuters.

China's stock benchmarks .SSEC, .CSI300 rose 1.6% and 2.4% respectively. Global ratings agency Fitch affirmed the nation's 'A' sovereign rating with a stable outlook.

The yuan CNY=CFXS touched its strongest level in over three years. India's rupee INR= appreciated 0.5%, while the Indonesian rupiah IDR= and Sri Lankan rupee LKR= were up 1% each.

South Africa's stocks .JTOPI jumped 3%, while the rand ZAR= strengthened 0.6%. Stronger gold prices also aided gains as the country is among the major exporters of the yellow metal.

Turkey's benchmark .XU100 advanced 2.7%. Industrial production rose 3.7% month-on-month in April on a seasonally and calendar-adjusted basis, official data showed.

Most emerging market currencies were flat to lower against the euro. However, the Hungarian forint HUF= gained 0.6% against the dollar taking its yearly gains to over 7.7% and making it one of the best-performing currencies in 2026.

Stocks in Poland .WIG gained 0.8%, while Hungary .BUX added 0.6%. Romanian stocks .BETI however, declined 0.6%.

HIGHLIGHTS:

** China bonds emerge as surprise haven as Iran war reshapes portfolios

** EU envoys agree to first phase of membership talks for Ukraine and Moldova

** What's happening with the contested ballots in Peru's election?

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