Emerging Stocks Rally as Commodity Prices Rise to Five-Week High

  • Foreign flows to emerging Asia top $2 billion in March
  • Ibovespa benchmark index enters bull market in Sao Paulo

Emerging-market stocks posted their longest streak of gains this year as rebounding commodity prices and optimism that Chinese policy makers will do more to boost a slowing economy added to a bullish sentiment that has been building for developing-nation assets.

A gauge of energy producers rose for a fifth day as oil rose to an eight-week high. Brazilian stocks extended their gains from a January low to 26 percent, pushing the Ibovespa into a bull market. India’s benchmark index advanced as steelmakers including Tata Steel jumped after the government announced plans to support metals producers. Chinese stocks climbed for a third day. The yield on Turkey’s 10-year government bonds fell the most this year.

Assets in developing countries are rebounding as commodity prices stabilize and speculation grows that China will do more to tackle the slowest growth in a quarter century. Global funds pumped more than $2 billion in emerging Asian stocks and bonds this month, and equities worldwide have recouped more than half of their 2016 losses since sinking to a 2 1/2-year low three weeks ago. Sentiment was also supported by reports showing employment and factory activity in the U.S improved in February.

“If oil prices continue to increase, along with other commodity prices, then we can go higher,” said Nathan Griffiths, a senior emerging-market equities manager who helps oversee $1.2 billion at NN Investment Partners in The Hague and has increased his exposure to gold. The rally “is being driven now predominantly by the most underweighted and shorted names and sectors,” he said.

Stocks

The MSCI gauge of emerging-market stocks rose 1.4 percent to 780.19, advancing for a fifth day. The measure is valued at 11.5 times the projected 12-month earnings of its members, compared with a multiple of 15.6 for MSCI World Index. The Bloomberg Commodity Index advanced 0.5 percent to the highest level since Jan. 29.

An index of 20 developing-nation currencies gained 0.5 percent and has climbed 1.8 percent in four days, poised for its biggest weekly advance since October.

The Ibovespa rallied 5.1 percent. Steelmaker Usinas Siderurgicas de Minas Gerais SA rose the most on the Brazilian benchmark, surging 35 percent as metal prices jumped. Petroleo Brasileiro SA, the state-run oil producer, gained 16 percent.

Tata Steel jumped 7.3 percent in India, and Jindal Steel & Power Ltd. rallied 11 percent, the most since Feb. 15. Russia’s Gazprom PAO and Lukoil PJSC each added at least 2.3 percent.

China, India

The Bloomberg GCC 200 index of Gulf shares advanced 0.9 percent to the highest in almost two months with developers Arabtec Holding Co. PJSC and Salhia Real Estate Co. KSCP gaining more than 6 percent.

The Shanghai Composite Index rose 0.4 percent to complete its biggest three-day gain since November.

India’s S&P BSE Sensex added 1.5 percent, extending its three-day gain to 7 percent, and South Africa’s FTSE/JSE Africa All Share Index and Russia’s Micex Index rose at least 1.4 percent.

Brazil’s real gained 2.5 percent, while the Argentine peso added 3 percent, the most among 24 emerging-market currencies tracked by Bloomberg. South Africa’s rand declined 0.7 percent against the dollar, as Barclays Plc forecast the currency will decline toward 17 per dollar. The Mexican peso shed 0.6 percent.

Yield Spread

The South Korean won strengthened 1.1 percent, the most in a month while the Malaysian ringgit climbed 0.8 percent. Hungary’s forint advanced 1.1 percent against the dollar. Russia’s ruble fell 0.1 percent as oil swung between gains and losses.

The yield on Turkey’s 10-year government bonds fell 17 basis point to 10.15 percent after inflation slowed more than expected on food costs. Turkey sold dollar-denominated bonds for the first time since April yesterday as borrowing costs fell to the lowest level this year and investors speculate the U.S. won’t rush to raise interest rates.

Russian five-year government bonds known as OZPs rose for the third time this week, pushing the yield to 9.46 percent, the lowest since October, 2014.

The extra yield investors demand to own emerging-market bonds over U.S. Treasuries declined 1 basis point to 434 basis points.

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