Emerging Currencies Advance, Stocks Fluctuate on Fed Rate Bets

  • Shanghai Composite Index drops the most in three weeks
  • Russia's ruble posts biggest gain this month as oil rises

Emerging-market currencies advanced and stocks slipped in volatile trading as investors weighed the potential for an increase this week in the near-zero U.S. interest rates that have propped up demand for riskier assets in developing nations.

Russia’s ruble strengthened 1.2 percent against the dollar as crude, the country’s biggest export, rose for the first time in three days. The Turkish lira added 0.9 percent, while stocks advanced for the first time in five days in Istanbul. Banks led gains in Brazil’s Ibovespa equity gauge, which added 0.2 percent. The Kospi Index advanced 0.3 percent in Seoul.

A Bloomberg gauge of 20 developing-nation currencies increased 0.1 percent in a sixth straight gain. The MSCI Emerging Markets Index slipped 0.1 percent to 806.78 after rising as much as 0.3 percent. The developing-nation stock gauge has risen 4.5 percent from this year’s low in August and currencies have rebounded from record lows amid mounting speculation that the Fed will further postpone its first interest rate increase in six years. Traders on Tuesday put the odds of an increase this week at 28 percent, down from 48 percent a month ago, data compiled by Bloomberg show.

“If the Fed moves to go ahead and raise rates, we’ll see a resumption in the rally of the dollar that’s been on hold since the first quarter, and that’d put a great deal of pressure on the emerging markets,” Peter Sorrentino, a senior vice president and portfolio manager with Huntington Asset Advisors who helps oversee about $233 billion, said by phone. “There are still some indications of weakness, and that has given traders belief that the Fed, many speculate, won’t raise rates.”

China Slump

The Shanghai Composite Index slumped 3.5 percent, the most since Aug. 25, after data yesterday showed mainland Chinese equity funds lost 44 percent of their value in August. Chinese stocks have fallen 6.1 percent this week. PetroChina Co., the nation’s most valuable listed energy producer, slid to a nine-month low. The Hang Seng China Enterprises Index of mainland shares listed in Hong Kong decreased 0.3 percent.

Data this month showed five interest-rate cuts since November and plans to boost state spending have yet to revive a Chinese economy weighed down by overcapacity and producer-price deflation.

“We have had a slew of data from China over recent days that continue to show a soft economy,” said Nathan Griffiths, a senior emerging-market equities manager who helps oversee about $1.2 billion at NN Investment Partners in The Hague. “The most worrying aspect for the market is that we have had a lot of incremental monetary policy stimulus over the past twelve moths, but it has done little to drive faster growth.”

Brazil, Russia

Six of 10 industry gauges in the MSCI Emerging Markets Index declined, led by technology companies, while consumer-staple shares rose. The gauge has declined 16 percent this year and trades at 10.7 times projected 12-month earnings. The MSCI World Index of developed-nation stocks has lost 5.2 percent this year and is valued at a multiple of 15.2.

Itau Unibanco Holding SA jumped 2.5 percent, leading gains in Sao Paulo. Banco Bradesco SA rose 1.9 percent. Brazilian stocks rebounded on speculation interest rates will be kept on hold. Brazil’s real slumped 1.1 percent against the dollar as Goldman Sachs Group Inc. questioned the viability of government proposals to shore up its finances.

The Micex Index slid 0.8 percent in Moscow, dragged down by a 1.9 percent slump in Lukoil PJSC, which Citigroup Inc. lowered to the equivalent of hold from buy. The ruble rose the most among emerging-market currencies as Brent crude, the oil grade traders use to price Russia’s main export blend, rose 0.6 percent to $46.63 a barrel.

Turkish stocks climbed 2.6 percent, their biggest gain in three weeks, and the lira strengthened 0.9 percent after reports Kurdish PKK militants are set for talks with the government to find a solution to escalating violence in Turkey. PKK’s Murat Karasu told Med Nuce TV channel that the organization is ready for talks with the government observed by intermediaries, Dogan News Agency reported.

The premium investors demand to own developing-nation debt over U.S. Treasuries narrowed 12 basis points to 382 basis points, according to JPMorgan Chase & Co. Indexes.

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