Emerging-Market Equities End Two-Day Drop as Commodities Rebound

  • Stocks set for longest run of weekly declines since August
  • Turnaround in risk demand is ‘temporary,’ Union Bancaire says

Emerging-market stocks rose for the first time in three days, reducing a fifth weekly decline, and currencies strengthened as rising commodity prices helped boost assets in exporting nations.

Brazil’s real and the South African rand led currencies higher as a gauge of developing-nation raw material stocks climbed from the lowest level in more than two months. Chinese shares in Hong Kong erased a weekly loss and Hungarian stocks and bonds rallied before Fitch Ratings raised the country’s credit grade above junk.

Global markets rebounded from a selloff caused by a surge in expectations this week for an increase in U.S. borrowing costs. Traders boosted bets of an increase in borrowing costs after minutes from the most recent Fed meeting showed policy makers discussed raising interest rates as soon as in June. Foreign funds pulled a combined $851 million from Taiwanese, South African and South Korean shares this week and $1.2 billion from South African and Indian bonds, according to exchange data.

“People are taking the view that even though the Fed may hike in June or July, we are unlikely to be on a protracted tightening cycle because the global economy is enjoying only a fragile calm,” said Koon Chow, an emerging-market strategist at Union Bancaire Privee in London, who is recommending buying the dollar against emerging-market currencies. “This turnaround in risk today is temporary.”

The MSCI Emerging Markets Index climbed 0.4 percent to 785.26, reducing a weekly retreat to 1.5 percent. The benchmark posted its longest stretch of weekly declines since August. A gauge of developing-nation exchange rates rose 0.3 percent on Friday, cutting a weekly drop to 1 percent.

There’s a 26 percent chance of a rate increase in June and 59 percent by September, according to Fed Funds futures, compared with comparable readings of 4 percent and 34 percent at the end of last week.

Hungarian stocks jumped 2.7 percent, narrowing a five-day decline to 0.5 percent. Fitch raised the country’s long-term credit rating to BBB- from BB+ after the close of trading, making it the first of the largest three credit assessors to reward Prime Minister Viktor Orban’s push to reduce public debt and backtrack on measures that contributed to downgrades five years ago.

South African equities advanced 0.5 percent, extending gains over five days to 2 percent.

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong rose 0.7 percent on Friday. Taiwan’s Taiex gauge posted its first weekly gain in five weeks. Tsai Ing-wen, the country’s first female president, said in her inauguration speech on Friday that her administration will maintain a dialog with China. The iShares MSCI Taiwan ETF rose 1.6 percent in New York.

Currencies Gain

The real and rand each gained at least 1.1 percent on Friday. The Bloomberg Commodity Index increased 0.2 percent. A gauge of the greenback against 10 peers was unchanged Friday and gained 0.8 percent for the week and 3.2 percent in May.

“If the U.S. central bank does hike next month, the dollar will strengthen further and emerging-market currencies will decline,” said Roy Teo, a senior currency strategist at ABN Amro Bank NV in Singapore.

Russia’s ruble fell less than 0.1 percent, extending a five-day decline. Oil, the country’s main export, posted a second weekly advance on declining U.S. crude production. European Union nations are set to renew sanctions against Russia in June for six more months because of deadlock in implementing a 2015 peace accord to end fighting in eastern Ukraine, according to six European officials.

The yield on Hungarian 10-year bonds fell from a three-month high, dropping four basis points to 3.44 percent. Russia’s five-year sovereign bonds rose for the first time in four days, lowering the yield two basis points to 9.17 percent.

The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed one basis point to 399, according to JPMorgan Chase & Co. indexes.

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