Emerging ETF Climbs as Fed Cuts Stimulus on Jobs Outlook

The iShares MSCI Emerging Markets Index exchange-traded fund rose the most in two weeks as the Federal Reserve said it will cut stimulus amid a better outlook for the U.S. jobs market while keeping rates close to zero.

The developing-nation ETF advanced 2 percent to $41.30 in New York. The MSCI Emerging Markets Index increased 0.2 percent to 992.70. India’s S&P BSE Sensex ended a six-day decline after the nation’s central bank unexpectedly refrained from raising interest rates. Brazil’s real trimmed a slump of as much as 1.7 percent. Ukrainian dollar bonds extended the biggest jump on record, pacing gains in emerging-market bonds.

Stocks joined a rally in U.S. equities after the Fed said it will cut monthly bond purchases to $75 billion from $85 billion, the first step toward unwinding unprecedented stimulus. Fed officials predicted the unemployment rate will fall as low as 6.3 percent by the end of next year, compared with a September projection of 6.4 percent to 6.8 percent. Emerging-market stocks have slid as much as 16 percent since May 22, when the Fed signaled stimulus could be trimmed.

“A small taper, not anything meaningful,” Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co., which oversees $160 billion, said by phone. “There is a commitment to hold those rates lower for longer. That’s why you had a jump up in equity prices.”

The U.S. central bank today left unchanged its statement that it will probably hold its target interest rate near zero “at least as long as” unemployment exceeds 6.5 percent, so long as the outlook for inflation is no higher than 2.5 percent.

Price Swings

Nine out of 10 groups in the developing-nation gauge rose today, led by health-care, phone and commodity stocks. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, tumbled 15 percent to 21.16.

Brazil’s Ibovespa added 0.9 percent as concern eased that less monetary stimulus in the U.S. will curb demand for Brazilian stocks. Gafisa surged 6.3 percent, while brewer Ambev SA (ABEV3) jumped after Banco Santander SA raised it to buy. The real snapped four days of gains.

Russian shares advanced for a fourth day before as oil producer OAO Bashneft jumped. Ukrainian assets rallied, with the yield on Ukraine’s dollar denominated bonds due 2023 falling for a second day to 8.94 percent at 6:59 p.m. in Kiev. The cost to insure Ukraine’s debt against non-payment with five-year credit default swaps dropped to 785 basis points, the lowest since Aug. 5, according to data compiled by Bloomberg.

Record Selloff

The FTSE NSE Kenya 25 Share Index fell for a 13th day in the longest slide since the index was created in May 2011. Kenya, South Africa, Nigeria and Ghana are at risk of losing foreign-investor inflows if Fed tapering begins, Fitch Ratings said in a Dec. 13 report.

The Shanghai Composite Index (SHCOMP) fell for a seventh day, extending the longest losing streak since June, after money-market rates jumped. China Avic Avionics Equipment Co. slid 2.5 percent to lead declines for industrial shares. China Shipping Development Co. retreated to a two-week low.

India’s benchmark equity index rose to a one-week high, led by capital goods and real estate companies. Bharat Heavy Electricals Ltd., a maker of power equipment, posted the biggest gain in three months. DB Realty Ltd. (DBRL) surged 7.7 percent, helping a gauge of developers jump the most in two months.

Indonesia’s rupiah fell 0.4 percent to 12,165 per dollar as of 4:42 p.m. in Jakarta, prices from local banks show. It reached 12,181 earlier, the weakest level since December 2008, and lost 21 percent this year. Thailand’s baht dropped by the most in almost three months, while Malaysia’s ringgit fell for a sixth day, its longest losing streak since August.

The premium investors demand to own emerging-market debt over U.S. Treasuries fell four basis points, or 0.04 percentage point, to 317 basis points, according to JPMorgan Chase & Co.

To contact the reporters on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net; Phani Varahabhotla in Hong Kong at pvarahabhotl@bloomberg.net; Maria Levitov in London at mlevitov@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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