- Gain trims developing-nation benchmark's 2015 drop to 15%
- Chinese stocks rise for a second day, led by small companies
Emerging-market stocks rallied for a second day as China’s pledge to boost government spending emboldened investors to look for bargains among beaten down shares.
The rebound follows losses for developing-nation shares in 15 of the 19 weeks since April as China unexpectedly devalued the yuan, exacerbating a rout amid nervousness before a potential interest-rate increase in the U.S. Chinese Finance Minister Lou Jiwei said over the weekend official spending will rise 10 percent this year, and his department detailed government plans to speed up the construction of major projects, provide incentives for consumption and offer tax breaks to companies.
China’s fiscal support -- in addition to its monetary stimulus -- gave bulls an edge in the debate over whether the $6.6 trillion wipeout since mid-June through August has made stocks cheap enough to buy again. Even so, money managers cautioned that the bounce-back could be short-lived as growth hurdles and capital flight to dollar assets after a Federal Reserve move will weigh on markets.
“Markets have been very weak, so there is room for a bounce, but looking at emerging-market growth and capital flows, it is difficult to imagine that the correction is over,” Maarten-Jan Bakkum, a senior emerging-markets strategist at NN Investment Partners in The Hague, said by e-mail. “Equities will need real concrete announcements of credible Chinese easing to move higher.”
The MSCI Emerging Markets Index rose 2.4 percent to 809.51, pushing the two-day gain to 4 percent. The benchmark gauge trades at 10.7 times the projected earnings of its members, 16 percent below its valuation in April. Developing-nation shares are almost a third cheaper than their counterparts in advanced countries as investors avoid riskier assets amid expectations for higher yields from their U.S. investments.
Expectations for price swings in Chinese shares fell by the most since July as the Shanghai Composite Index climbed to the highest close since Aug. 21. Fiscal stimulus will play a larger role in boosting growth in the second half of 2015, Nomura Global Markets Research analysts wrote in a report dated Wednesday. China’s central bank Governor Zhou Xiaochuan said over the weekend the plunge in Chinese equities is almost over.
“The gains in Chinese shares helped calm markets down and investors believe that China will have more fiscal policies, not only monetary, to stabilize the economy,” Thebes Lo, Hong Kong-based vice president at Kim Eng Securities Ltd., said by phone. “Risk appetite is back a little bit. I have been suggesting to some of my clients to accumulate quality blue-chips.”
The Hang Seng China Enterprises gauge rose 5.2 percent, extending Tuesday’s 4.1 percent jump. That’s the biggest two-day gain since October 2011.
The Ibovespa slid 0.2 percent after erasing a gain of as much as 2.3 percent. Petroleo Brasileiro SA, the Brazilian state-run oil producer, dropped 2.9 percent, outweighing gains in raw-material exporters including steelmaker Cia. Siderurgica Nacional SA, which advanced 1.6 percent.
Shares of mobile-phone carriers in India rallied after the government allowed them to trade wireless airwaves with rivals as part of new rules that may prompt consolidation in the industry. Reliance Communications Ltd. jumped 12 percent.
A gauge of 20 developing-nation currencies ended the session little changed after rising as much as 0.3 percent. The odds that the Fed will raise interest rates at its meeting Sept. 16-17 stood at 28 percent, based on federal-funds futures.
Russia’s ruble weakened 0.8 percent against the dollar. While some investors predicted the central bank will end its rate-cutting cycle at its meeting Friday, Royal Bank of Scotland Plc warned that such bets underestimated the chances of a cut.
The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed three basis points to 3869 basis points, according to JPMorgan Chase & Co. indexes.