Europe Stimulus Prospects Help Emerging Markets Look Beyond Fed

  • China's non-manufacturing growth offsets slowdown concern
  • Turkey's lira, stocks rally on European Union's aid offer

Emerging-market currencies advanced and stocks rebounded from a two-week low as China’s non-manufacturing industries expanded more than forecast and expectations for additional stimulus in Europe boosted demand for riskier assets.

Turkey’s lira rose for a second day as the European Union pledged financial aid for nations neighboring Syria that have been beset by the refugee crisis. The Brazilian real strengthened for the first time in three days. Chinese shares traded in Hong Kong posted the biggest gain in almost four weeks. Equity gauges in South Korea and Taiwan each rallied at least 1.6 percent.

A measure of China’s industrial activity outside the factory floors expanded in November even as manufacturing continued to shrink, the National Bureau of Statistics said. Resilience in services and consumption is holding up employment in the world’s second-biggest economy. Just as the Federal Reserve moves closer to raising interest rates, the European Central Bank is examining whether to increase the region’s money supply.

“Emerging assets in central and eastern Europe are placed well to profit from ECB easing,” said Bernd Berg, the London-based director of emerging-market strategy at Societe Generale. “Greater risk sentiment for emerging markets is boosted by Chinese data, which have not been as bad as feared.” He recommends buying the Polish zloty against the euro.

Commodities Gain

A gauge of 20 emerging-market currencies tracked by Bloomberg added 0.3 percent, rising for the first time in five days. The MSCI Emerging Markets Index gained 1.4 percent to 825.48. A gauge of raw-material stocks advanced from a two-month low as the Bloomberg Commodity Index increased 0.8 percent.

The Shanghai Composite Index rose on speculation China will loosen monetary policy to arrest a further worsening of manufacturing activity. The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong halted a six-day losing streak.

The yuan weakened 0.3 percent in offshore trading while the onshore spot rate remained little changed after International Monetary Fund officials voted to include the currency in their Special Drawing Rights basket -- an outcome that had mostly been factored into the exchange rate, according to HSBC Holdings Plc.

Valuation Discount

Stocks and currencies in emerging markets fell in all but one of the last seven months as the prospect of a U.S. rate increase coincided with slowing growth in China. Emerging-market equities have lost 14 percent this year and trade at 11 times projected 12-month earnings, a 32 percent discount to advanced-nation equities.

Turkish stocks climbed 2.1 percent and the lira strengthened 0.8 percent against the dollar, its second day of gains.

The premium investors demand to own developing-country debt over U.S. Treasuries widened six basis points to 396, according to JPMorgan Chase & Co. indexes.

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