Emerging Markets Advance With Oil Gains as Argentina Sells Bonds

Weak Dollar Is Fresh Air for Emerging Markets: Zervos
  • Colombian peso leads currency gauge to highest since July
  • Lebanon sells $1 billion of eight-year, 15-year bonds

Energy producers led emerging-market stocks to a five-month high and currencies strengthened as crude’s recovery from Monday’s decline bolstered investor confidence in riskier assets.

Gazprom PAO of Russia and PetroChina Co. led a gauge of developing-nation oil companies to its first gain in four days as Brent crude sold for more than $44 a barrel, after slumping as much as 7 percent Monday. Colombia’s peso strengthened the most among currencies, while the Malaysian ringgit ended a three-day decline. Argentina sold $16.5 billion of bonds in its return to international debt markets after 15 years of isolation. Lebanon sold $1 billion of securities.

Emerging markets have rebounded from January lows as oil rallied from a 12-year low and signs of accommodative policy by the Federal Reserve and stimulus measures in Europe and Japan bolstered appetite for higher-yielding assets. More than $1.5 trillion has been added to the value of equities in the past three months and a gauge of currencies has surged to the highest since July on Tuesday. 

“With oil resilient, the risk rally continues,” said Nathan Griffiths, a senior emerging-market equities manager who helps oversee $1.1 billion at NN Investment Partners in The Hague. Fed Chair Janet Yellen will not raise rates until inflation really is a concern, “so the market will ignore those Fed members regarded as hawks until such time,” he said.

Fed Outlook

Traders are assigning zero chance of a Fed rate increase this month, with odds exceeding 50 percent for its December meeting. Boston Fed President Eric Rosengren said on Monday the U.S. economy is healthier than the market is implying.

The MSCI Emerging Markets Index climbed 1.1 percent to 852.73, the highest closing level since Nov. 5. It fell 0.4 percent on Monday, when it halted a seven-day winning streak.

All 10 industry groups advanced. The gauge has risen 7.4 percent this year and is valued at 12 times projected 12-month earnings. That compares with a 1.8 percent increase in the MSCI World Index, which trades at a multiple of 16.2.

Benchmark equity gauges in crude exporters Saudi Arabia and Russia each added more than 1.7 percent. Gazprom, Russia’s biggest natural-gas exporter, surged 6.6 percent in Moscow as the government ordered it and other state-controlled companies to pay out half their profits as dividends. Sberbank PJSC, the nation’s largest lender, rose to a record.

Crude Rally

Brent crude rose 2.6 percent to $44.03 as a strike in Kuwait cut output from OPEC’s fourth-biggest member, countering the bearish impact of failed production-freeze talks in Doha. The labor stoppage in Kuwait that initially slashed daily output by as much as 1.7 million barrels entered a third day.

The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong rose 1.7 percent as PetroChina gained 3.8 percent. The Shanghai Composite Index added 0.3 percent.

The MSCI Emerging Markets Currency Index rose 0.7 percent. The Colombian peso rallied 2.4 percent. Brazil’s real jumped 2.3 percent following two days of losses. The South African rand climbed 1.6 percent.

The ringgit added 0.9 percent and 1Malaysia Development Bhd.’s bonds maturing in March 2023 rose for the first time in four days as the state-owned investment company said it expects to avoid a debt default.

The won climbed 1.3 percent to a five-month high after the Bank of Korea refrained from cutting its benchmark interest rate.

Argentina, Lebanon

Argentina sold 10-year, three-year, five-year and 30-year bonds with an average coupon of 7.14 percent, according to a Finance Ministry statement. The $16.5 billion sale, which was increased from an earlier target of no more than $15 billion, was the biggest for a developing nation on record. It could have sold twice that much, Finance Minister Alfonso Prat-Gay said at a press conference Tuesday.

Lebanon, the most indebted Arab nation, issued $700 million of eight-year notes at 6.65 percent and $300 million of 15-year securities at 7 percent, according to information from a person familiar with the transaction.

The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed five basis points to 389, according to JPMorgan Chase & Co. indexes.

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