- Futures traders practically rule out an increase this month
- Currencies rise to strongest against dollar since mid-August
Emerging-market stocks posted their biggest six-day rally since 2011 and a gauge of currencies jumped to a seven-week high as investors became increasingly confident that the Federal Reserve will refrain from increasing U.S. interest rates until next year.
Traders of Fed-funds futures are practically ruling out a move in benchmark U.S. borrowing costs after a policy meeting Oct. 28, helping developing-nation equities rebound from the worst quarter in four years. The Fed’s near-zero interest rates have buoyed demand for riskier assets, and an increase is expected to lure money away as the dollar strengthens.
“Emerging-market assets are boosted these days as it appears less likely that the Fed hikes rates in 2015,” Bernd Berg, a London-based emerging-markets strategist at Societe Generale SA, said by e-mail. “The worst storm is over for now but the weak growth backdrop in emerging markets will prevent any significant extension of the rally.”
Stocks are rallying after losing $6.3 trillion between mid-June and late September amid China’s unexpected devaluation of the yuan and concern that higher U.S. interest rates will spur money managers to sell emerging-market investments and buy dollar assets. Morgan Stanley said this week the rebound should not be taken as the start of a bull market as a poor earnings outlook will limit gains. The International Monetary Fund lowered its projection for global economic growth to 3.1 percent from a July prediction of 3.3 percent.
The MSCI Emerging Markets Index rose 2.7 percent to 850.78, pushing the six-day advance to 9.6 percent. All 10 industry subgroups climbed. The gauge, which has fallen 11 percent this year, is valued at 11.3 times the projected earnings of its members. That’s equal to its 10-year average and represents a 26 percent discount to advanced-nation shares.
The Ibovespa jumped 2.5 percent, extending its rally to a seventh day. Vale SA, the world’s largest iron-ore producer, led the Brazilian stock benchmark higher, rising 10 percent.
The ruble rallied 1.1 percent against the dollar, climbing to the strongest level since late July as Brent crude closed above $51 a barrel for a second day. A recovery in oil prices has boosted the appeal of assets in Russia, which derives half its government budget revenue from energy sales. The dollar-denominated RTS Index jumped 2.1 percent to a two-month high.
The ringgit climbed 3.6 percent versus the dollar after Malaysia’s trade data topped estimates. Malaysia’s currency, Asia’s worst performer this year, is rebounding as higher oil prices shore up revenue for the region’s only major oil exporter.
The rupiah strengthened 3 percent as Indonesia prepared to release the third part of a stimulus package. A Bloomberg gauge tracking 20 emerging-market currencies advanced for a fourth day, increasing 0.5 percent to the highest level against the dollar since mid-August.
While China’s mainland markets remained closed for a week-long holiday, the country’s shares listed in Hong Kong jumped the most in four weeks. Cnooc Ltd. and China Oilfield Services Ltd. soared at least 12 percent.
Samsung Electronics Co. advanced 8.7 percent in Seoul as a revamped smartphone lineup and a renewed focus on components gained traction. Earnings increased 80 percent in the September quarter, beating estimates and snapping a streak of seven consecutive declines. The Kospi Index added 0.8 percent to a two-month high.
The premium investors demand to hold developing-nation debt over U.S. Treasuries narrowed five basis points to 409 basis points, according to JPMorgan Chase & Co. indexes.