Emerging Markets Rally on China Stimulus Bets as Oil Lifts Ruble

  • China's GDP slows to weakest pace since 2009 on manufacturing
  • Ruble, rand gain as currency gauge rises from record low

Emerging-market stocks climbed from the lowest level since 2009 as data showing a weakening Chinese economy bolstered speculation of more stimulus and an increase in oil prices spurred gains in energy producers. Russia’s ruble and South Africa’s rand led currencies higher.

The Shanghai Composite Index jumped the most in two months, while shares in Russia and the Middle East advanced as oil rebounded from a 2003-low. A gauge of developing-nation currencies climbed from a record low and the premium investors demand to own emerging-market debt rather than U.S. Treasuries fell from the highest since 2009.

China capped the weakest quarter of growth since the 2009 global recession, spurring speculation that more stimulus may be needed to revive the world’s second-biggest economy. More than $2.3 trillion has been shaved off the value of emerging-market equities this year as a commodities rout and anxiety over China’s management of its economy curb risk appetite, sending equity valuations to the lowest level since August.

“The start of the year has been so poor that I think we will see a bounce now,” said Hertta Alava, head of emerging markets at FIM Asset Management Ltd. with about $326 million under management in Helsinki, who prefers Indian shares. “The markets are speculating that there will be more stimulus in China. It is possible, but considering that the numbers were only slightly weaker than estimates and still quite strong, I wouldn’t expect to see anything special.”

Data on Tuesday showed China’s gross domestic product rose 6.8 percent in the fourth quarter, less than the forecast for 6.9 percent growth. For the full year, GDP increased 6.9 percent -- the least since 1990 -- in line with the government’s target of about 7 percent. Industrial production, retail sales and fixed-asset investment all slowed at the end of the year. The People’s Bank of China could cut lenders’ reserve-requirement ratios to support the economy, according to Barclays Plc.

The MSCI Emerging Markets Index climbed 1.6 percent to 714.4. The gauge has fallen 10 percent this year, sending its 14-day relative strength index to 19 on Monday, the lowest since August. The indicator has been hovering below 30, a level that some analysts say signals a rebound is imminent, since Jan. 6.

Eight out of 10 industry groups in the emerging-markets gauge rose more than 1 percent, led by a 2.3 percent jump for energy companies as Brent crude climbed 0.7 percent. The index trades at 10.6 times its projected 12-month earnings, compared with a multiple of 14.5 for advanced-country shares in the MSCI World Index.

“China has more room to undertake stimulus measures,” said Kuala Lumpur-based Ang Kok Heng, chief investment officer at Phillip Capital Management Bhd., which manages $630 million.

Investors pulled more than $2.1 billion out of U.S. exchange-traded funds that invest in emerging markets last week, the most since August, according to data compiled by Bloomberg. China and Hong Kong led the losses.

Stocks

The Shanghai Composite rallied 3.2 percent on Tuesday. China Communications Construction Co. and China Railway Group Ltd. both surged by the daily limit on prospects of state-fund buying. The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong jumped 3 percent.

Russia’s Micex Index added 1.4 percent as natural-gas producer Gazprom PJSC jumped the most in a week and Lukoil PJSC advanced 1.8 percent, the most in two weeks.

Dubai’s DFM General Index climbed 3.3 percent, while Qatar’s benchmark equity gauge jumped 5.5 percent, the most since December 2014 and its first gain in nine days. Saudi Arabia’s Tadawul All Share Index climbed 4 percent, its biggest advance since August.

Iron-ore miner Vale SA helped lift the Ibovespa to a 0.3 percent gain. Petroleo Brasileiro SA, Brazil’s state-controlled oil producer, slumped 2.9 percent to a 2003-low.

Currencies

A gauge of emerging-market currencies strengthened 0.2 percent, as Russia’s ruble jumped 0.9 percent. The rand strengthened 0.7 percent.

Brazil’s real pared gains after central bank President Alexandre Tombini said policy makers will take into account the International Monetary Fund’s forecast of a deeper recession in Brazil when they meet this week. The IMF predicted the economy will contract 3.5 percent this year and stagnate in 2017, according to a report published Tuesday. The real declined 0.8 percent to 4.0641 per dollar.

Azerbaijan’s manat lost 1 percent. The nation that has devalued its currency twice last year is imposing restrictions on the movement of capital as authorities try to cope with the fallout from collapsing oil prices.

China’s yuan traded offshore weakened by 0.14 percent as economic data fueled speculation China will loosen monetary policy further. The PBOC could reduce lenders’ reserve-requirement ratios by 50 basis points before the Lunar New Year holiday begins in early February to support the economy, according to a Barclays report.


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