Emerging-Market Stocks Rise as Dovish Fed Outweighs Brazil Slump

  • Ibovespa tumbles most in world on Brazil recession outlook
  • Goldman says sell Asian currencies after best rally since `08

Emerging-market stocks rose as the Federal Reserve signaled it’s in no hurry to raise U.S. interest rates, outweighing a slump in the Ibovespa as economists forecast a deeper recession in Brazil this year.

Turkish shares advanced to the highest level since June as annual inflation dropped more than forecast, giving the central bank more room to keep cutting rates. Indian stocks rose on bets the nation’s policy makers will lower borrowing costs on Tuesday. Colombia’s peso and the Russian ruble weakened as Brent crude price sank below $38 a barrel.

The MSCI Emerging Markets Index rose 0.1 percent to 826.78. Markets were closed in China, Hong Kong and Taiwan for holidays. The benchmark equity gauge rallied 1.7 percent last week as Fed Chair Janet Yellen said policy makers must proceed cautiously in raising interest U.S. borrowing costs amid global growth risks. That prompted traders to push back their bets on when policy tightening will start, making higher-yielding assets in the developing world more alluring.

“The single most important thing for emerging markets is the dollar,” said Nathan Griffiths, a senior emerging-market equities manager who helps oversee $1.1 billion at NN Investment Partners in The Hague. “With no rate-hike expectations now for the rest of the year, there is no short-term pressure for the dollar to strengthen.”

Lender Itau Unibanco Holding SA led declines in Sao Paulo as the Ibovespa tumbled 3.5 percent, the most among 93 primary equity indexes. Analysts covering Brazil predict the country’s gross domestic product will shrink 3.73 percent this year, according to a weekly survey published by the central bank. The estimate was worse than the 3.66 percent contraction forecast in a previous poll.

Fed futures traders now see a 49 percent chance that U.S. policy makers will raise interest rates in November, compared with 58 percent a month ago, data compiled by Bloomberg show. A government report showed on Friday that U.S. manufacturing expanded for the first time in seven months and more workers than expected were added to nonfarm payrolls last month.

The rally in emerging assets could hit a wall, according to bears including Barclays Plc. and UBS AG, who say it’s at odds with falling exports and contracting manufacturing in developing economies. The forces behind the gains -- a dovish Federal Reserve, stability in China’s economy and gains in oil prices -- are unlikely to persist, they say.

Turkey, India

The MSCI equity gauge surged 13 percent in March, the most since May 2009 and wiping out losses in the previous two months. The average valuation of companies on the measure was 11.7 times 12-month estimated earnings, compared with multiple of 15.8 for the MSCI World Index, which is down 1.3 percent in 2016.

Investors pumped more than $1 billion into U.S. exchange traded funds that buy emerging market stocks and bonds last week, bringing the month’s inflows to a record $9 billion, according to data compiled by Bloomberg. 

JPMorgan Chase & Co. favors emerging-market stocks over peers in the advanced world on valuations and a bet that growth surprises will shift in favor of developing nations, strategists including Mislav Matejka in London said in an e-mailed note on Monday.

The Borsa Istanbul 100 Index rose 1.8 percent. The Turkish inflation rate posted its biggest annual decline in more than three years, falling to 7.46 percent.

Currencies

The S&P BSE Sensex Index rose 0.5 percent. Infosys Ltd. led gains in Mumbai before the central bank policy meeting on Tuesday when 28 of 31 economists surveyed by Bloomberg see the Reserve Bank of India lowering the repurchase rate.

The ruble weakened 1.6 percent against the dollar as Brent crude slumped 1.2 percent to $38.21 a barrel in London. The Colombian peso slid 0.9 percent. The Malaysian ringgit depreciated 0.3 percent.

Goldman Sachs Group Inc. said it’s time to sell Asian currencies after their best monthly rally in more than seven years. The exchange rates will resume declines as further easing in China and Japan is likely to push the yuan and yen to their weakest levels since at least 2008, according to Kamakshya Trivedi, a strategist at the bank who accurately predicted in November that emerging markets would recover in 2016.

The MSCI Emerging Markets Currency Index rose 0.1 percent after a drop of 0.4 percent on Friday. The gauge added 5.2 percent in March, its biggest monthly jump since at least 1999.

The premium that investors demand to own emerging-market debt over Treasuries widened two basis points to 409, according to JPMorgan Chase & Co. indexes.

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