Emerging-market stocks advanced to a two-week high after Federal Reserve Chairman Janet Yellen said U.S. stimulus will be cut in measured steps. The rand led currencies higher as South Africa’s factory output increased.
The MSCI Emerging Markets Index added 1 percent to 944.75, the highest since Jan. 24. OAO Sberbank drove a rally in Russia’s Micex Index, while Brazilian state-run oil company Petroleo Brasileiro SA (PBR) capped the longest winning streak since September. The rand posted the biggest advance among the 31 major world currencies tracked by Bloomberg. Kazakhstan’s central bank devalued the tenge by the most since 2009.
Stocks joined a global rally after Yellen, delivering her first public remarks as Fed chairman, said more work is needed to restore the U.S. labor market to health. She also said financial-market turmoil doesn’t pose a major risk to the outlook for the world’s largest economy and repeated the Fed’s statement that asset purchases aren’t on a “pre-set course.”
“If the market’s interpretation is that Yellen will at least not step on the accelerator for the tapering program, that’s certainly encouraging for emerging markets,” Derrick Irwin, a money manager of the Wells Fargo Advantage Emerging Markets Equity Fund in Boston, said by phone. His firm oversees $357 billion. “It will be very data dependent.”
The iShares MSCI Emerging Markets Index exchange-traded fund advanced 2.2 percent to $39.13. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, declined 5.2 percent to 25.13.
The selloff that triggered the worst start for emerging-market stocks in four years is approaching the end as valuations begin to look attractive, Templeton Emerging Markets Group’s Mark Mobius said. The selloff dragged the benchmark index’s valuation to 8.96 times projected 12-month earnings on Feb. 4, the cheapest since August and compared with a multiple of 14 for the MSCI World Index of developed-country equities.
“We are nearing the point where people are beginning to say ‘hey, it looks pretty good now in terms of valuations,’” Mobius, who oversees more than $50 billion in developing-nation assets as an executive chairman at Templeton, said in an interview aired on Bloomberg Radio today. “We are probably nearing the end of this big rush out of emerging markets.”
Goldman Sachs Group Inc. (GS) Chief Executive Officer Lloyd C. Blankfein said emerging markets are better able to weather an investor retreat now than in 1998, when currency turmoil spread and forced international bailouts.
Brazil’s Ibovespa climbed to a three-week high as developer BR Properties SA led real-estate stocks higher after a report showed slower-than-forecast inflation. Petrobras, as the nation’s oil company is known, rose for a fourth day. The stock dropped to an eight-year low last week.
Russia’s stocks advanced for the fourth time in five days as Sberbank, the nation’s biggest lender, rallied. Benchmark stock gauges in Poland, Hungary and Turkey also gained. Ukraine’s hryvnia weakened amid speculation that capital controls imposed by the central bank last week won’t stop outflows of funds from the country.
South Africa’s rand led gains among major currencies against the dollar after South Africa’s jobless rate fell and manufacturing expanded more than economists expected.
Kazakhstan’s central bank devalued the tenge as reduced bond buying by the Fed sparks capital outflows from emerging markets and the currency of its main trading partner weakens.
Chinese stocks rose, sending a gauge of Hong Kong-listed (HSCEI) shares to its biggest gain in three months, as JPMorgan Chase & Co. predicted a market rally within weeks and China International Capital Corp. recommended insurers. China Life Insurance Co. and Ping An Insurance (Group) Co. surged more than 5 percent in Hong Kong, while PetroChina climbed 1.6 percent after its parent discovered a natural gas reserve that’s big enough to supply China’s needs for two years.
Indian equities increased, led by industrials and software services companies. Tata Motors Ltd. (TTMT) rose the most in two months after its quarterly profit tripled. Tata Steel Ltd. (TATA) gained to its highest level in three weeks before its earnings report. Infosys Ltd. (INFO) gained for a third day, helping a gauge of software exporters to its biggest gain in about a month.
The Philippine peso fell the most among Asian currencies, retreating from a one-month high, on speculation the central bank took advantage of the recent rally to buy dollars and boost foreign reserves.
The premium investors demand to own emerging-market debt over U.S. Treasuries fell six basis points, or 0.06 percentage point, to 336 basis points, according to JPMorgan Chase & Co.