Emerging-Market ETF Rallies as Brazil’s Real Leads Gains

The iShares MSCI Emerging Markets Index rose to a one-month high as better-than-estimated growth in Brazil bolstered optimism the global economy is recovering. The real led gains among the world’s major currencies.

The exchange-traded fund climbed 1.9 percent to $39.75 at the close in New York, while the MSCI Emerging Markets Index added 0.7 percent to 963.23. Brazil’s Ibovespa rallied 2.2 percent as iron-ore producer Vale SA (VALE) surged, while the real jumped to a two-month high. China’s swaps had the biggest drop in eight months as the central bank signaled cash supply is adequate. Russia’s ruble fell to a record as the nation began military exercises amid deepening tensions in Ukraine.

Brazilian shares led gains in major emerging-market equity gauges after data showed the economy in the fourth quarter grew more than forecast as an increase in investment offset a drop in industrial production. Federal Reserve Chair Janet Yellen said the central bank is likely to keep its strategy of gradually trimming bond buying even as policy makers monitor data to determine if the weakness in the economy is temporary.

“The pessimism toward emerging markets got ahead of the data,” Bill Adams, a senior international economist at PNC Financial Services Group in Pittsburgh, which oversees $127 billion in assets, said by phone. “Growth in Brazil is holding up. In general, emerging markets have been resilient to the effects of the Fed taper.”

Fifteen out of the 24 developing-nation currencies tracked by Bloomberg gained as the real climbed 1.3 percent. The premium investors demand to own emerging-market debt over U.S. Treasuries fell 0.02 percentage point to 328 basis points, according to JPMorgan Chase & Co.

Brazil, Russia

The Ibovespa rose the most since Feb. 6 after Brazil’s economic growth beat forecasts and the central bank signaled interest-rate increases are ending. Vale rallied after fourth-quarter earnings before taxes and other items beat estimates on rising prices for the steel-making material.

Russia’s ruble declined to a record, and Ukraine’s hryvnia weakened through 11 per dollar for the first time. OTP Bank Nyrt., Hungary’s largest lender, slumped to a 15-month low as rising political tension in Crimea and a weaker hryvnia hampered the outlook for earnings at its Ukrainian unit.

China’s one-year swaps, the fixed payment to receive the floating seven-day repurchase rate, fell 15 basis points to 4.37 percent as of 4:42 p.m. in Shanghai, data compiled by Bloomberg show. They dropped as much as 23 basis points earlier to 4.30 percent, the biggest decline since June 26.

To contact the reporters on this story: Julia Leite in New York at jleite3@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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