Emerging Markets Reduce Weekly Drop as Commodity Stocks Rally

  • Real, rand lead advance in developing-nation currencies
  • Brent crude rises above $41 a barrel before supplier meeting

Emerging-market stocks and currencies advanced, reducing declines for the week, as Brent crude surged above $41 a barrel, boosting energy stocks and currencies from Russia to South Africa.

A gauge of developing-nation energy shares rose for a third day as oil surged more than 6 percent in London before a meeting between suppliers to discuss freezing production. Developing-country bond yields narrowed. The Ibovespa gained for a second day and the real strengthened as speculation mounted that Brazil’s president will be ousted and a new administration will be better able to pull the economy out of recession. Chinese stocks slipped, posting their first weekly decline in a month.

Oil’s advance helped boost demand for riskier assets in at the end of a week when concern that global growth is faltering caused investors to question the strength of a recent rally. International Monetary Fund Managing Director Christine Lagarde said Thursday that the lender will probably reduce its outlook for world growth and minutes of the Federal Reserve’s March meeting released a day earlier showcased heightened global risks. The World Trade Organization lowered its trade growth forecast for 2016, citing a steep decline in China’s economy.

“The bounce in oil today is helping risk assets,” said Michael Wang, a strategist at hedge fund Amiya Capital LLP in London, who favors shares in India, Mexico and Poland. “Sentiment is still fragile.”

Brent crude jumped 6.4 percent to $41.94 a barrel, the highest closing price this year, as U.S. crude output continued to drop. Major producers from Saudi Arabia to Russia will meet in Doha on April 17 to discuss freezing output in a bid to stabilize prices.

The MSCI Emerging Markets Index rose 0.9 percent to 816.82, reducing its five-day decline to 1.1 percent. The MSCI Emerging Markets Currency Index climbed 0.4 percent, narrowing its weekly drop to 0.3 percent.

Nine out of 10 industry groups rose Friday, led by a 2.1 percent gain in energy shares. The developing-nation stock benchmark has climbed 2.9 percent this year and trades at 11.7 times estimated 12-month earnings, compared with 15.7 times for the MSCI World Index, which has retreated 1.8 percent this year.

The Ibovespa rallied 3.7 percent in Sao Paulo and the real strengthened 2.7 percent against the dollar. Brazilian assets have rallied amid mounting speculation that President Dilma Rousseff will be removed from office, clearing the way for a new administration that will be better positioned to pull the country out of a recession that is forecast to be the worst in more than 100 years.

Brazil, Russia

Russian stocks climbed, pushing the Micex Index up 1 percent in Moscow. Equity indexes across emerging Europe advanced, with benchmarks of Czech and Turkish stocks each rallying more than 1.6 percent.

The Shanghai Composite Index dropped 0.8 percent and posted its first weekly loss in a month. The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong advanced 0.6 percent, paring a five-day decline after entering a bull market last week.

The ruble jumped 1.3 percent, extending a weekly advance to 0.7 percent. The rand advanced 2 percent heading for a decline of 1.8 percent in the past five days as the currency was buffeted by impeachment proceedings against the country’s president.

Developing-nation currencies retreated 0.3 this week as investors took profits from the biggest rally in the asset class last month since records began in 1999.

Bonds Retreat

“Now may not be the best time to go jumping into EM currencies,” said Manpreet Gill, the Singapore-based head of fixed income, currency and commodities strategy at Standard Chartered Plc. “The next few weeks will be more of a breather and we’re not too keen to chase the rally. We need more evidence that the bad economic news have peaked.”

The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed four basis points on Friday to 414, according to JPMorgan Chase & Co. indexes. Domestic bonds of developing nations declined 0.2 percent this week, the most since early December, a JPMorgan Chase & Co index shows.

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