Emerging Currencies Strengthen With Oil as Stocks Extend Gains

Oil Focus Shifts to Iran and Iraq
  • Russian ruble, Mexican peso rise; Argentina's peso slumps
  • Energy producers advance for fourth day as crude rebounds

Emerging-market currencies advanced, led by Russia’s ruble and the Mexican peso, as oil rebounded and equity markets from Poland to Brazil rallied.

The ruble, peso and South African rand each climbed at least 2.1 percent, offsetting declines in Asian markets spurred by China’s cut in the yuan’s fixing by the most in more than a month. The MSCI Emerging Markets Index rose for a third day. Brazilian stocks rose to a six-week high amid a rally in raw materials. The premium investors demand to own developing-nation bonds over U.S. Treasuries narrowed.

Energy producers advanced for a fourth day in the longest rally since November as Iran and Iraq prepared to meet and discuss backing a proposal by Saudi Arabia and Russia to freeze production at near-record levels. In the past month, the MSCI Emerging Markets Index has risen 3.8 percent, outpacing a 1.5 percent advance for the MSCI World Index of developed-country shares.

“Sentiment toward emerging markets has been improving a bit, thanks to the outperformance over developed markets of the past few weeks,” said Maarten-Jan Bakkum, a senior strategist at NN Investment Partners in The Hague with about $206 billion under management. “Stronger oil is helping Russian stocks today. Turkey is very sensitive to swings in risk appetite.”

Bakkum said he prefers investing in equities in India, Mexico, Philippines, Indonesia, Chile and Argentina.

Currencies

A Bloomberg gauge tracking 20 developing-nation currencies climbed 0.8 percent. The ruble appreciated 3.8 percent as Brent crude surged 7.2 percent to $34.50 a barrel. The Mexican peso rallied 2.8 percent, the most since September 2011, as Banxico was said to sell dollars directly to banks to support the currency.

While Brent crude rallied Wednesday, it has fallen 48 percent from its 2015 high in May. The negative impact from slumping oil prices rippled further throughout crude-producing nations as Standard & Poor’s cut the credit ratings of Saudi Arabia, Oman, Bahrain and Kazakhstan Wednesday.

In Asia, South Korea’s won dropped 0.9 percent against the dollar and Malaysia’s ringgit slid 1.5 percent. Argentina’s peso weakened 1 percent, extending its decline into a fifth day.

The yuan fell almost 0.1 percent to 6.5259 per dollar, according to China Foreign Exchange Trade System prices. The People’s Bank of China cut its reference rate by 0.16 percent to a one-month low of 6.5237, surprising some analysts who had forecast smaller moves ahead of a Group of 20 meeting next week.

China’s yuan depreciation on Wednesday surprised some analysts and added to concern that the slowdown in the world’s second-biggest economy is deepening, while an unprecedented jump in new loans fueled speculation credit growth may pile risks on the nation’s financial system.

Stocks

The MSCI Emerging Markets Index gained 0.6 percent to close at 735.78. The measure has fallen 7.4 percent this year. The gauge trades at 10.8 times the projected earnings of its member, a 28 percent discount to MSCI’s benchmark for advanced-nation shares.

Poland’s WIG 20 Index jumped to the highest level this year after the government softened its stance on swapping home loans from foreign currencies. Turkey’s benchmark index increased 2.6 percent. The Ibovespa rose 1.7 percent in Sao Paulo.

The MSCI EM Asia Index ended a two-day gain, falling 0.4 percent as Chinese shares in Hong Kong lost 1.2 percent.

Bonds

The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed 12 basis points to 473, according to JPMorgan Chase & Co. indexes.

Russia sold its longest-dated debt in three years, taking advantage of demand from investors seeking to park money in fixed-rate bonds before the central bank lowers borrowing costs. The nation’s five-year notes climbed for the second time this week, pushing yields down seven basis points to 10.29 percent.

Bonds in Turkey declined, pushing yields on 10-year debt up eight basis points to 10.62 percent.

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