Emerging Assets Rise With Commodity Prices as Fed Concern Eases

Emerging Markets Brace for Fed
  • Russian ruble leads advance in developing-market currencies
  • Energy producers rally as oil approaches $50 a barrel

Emerging-market stocks rallied the most in six weeks and currencies gained as oil prices rose and optimism grew that global markets can withstand the impact of higher U.S. interest rates.

Energy companies led gains in equities. South Korea’s won rose even as China cut the yuan’s reference rate to the weakest level since March 2011. Russian assets advanced after the government sold its first Eurobonds since sanctions were imposed. The Ibovespa jumped the most in two weeks after Brazilian lawmakers supported budget legislation proposed by the country’s acting president.

Emerging markets gained as signs of strength in the U.S. housing market bolstered investor confidence that the global economy was on surer footing in a month dominated by concern the Federal Reserve may raise U.S. interest rates as early as next month. Oil approaching $50 a barrel also helped shore up sentiment.

“It looks like investors have digested the fact that the Fed will raise rates by July,” said Hertta Alava, the head of emerging markets at FIM Asset Management Ltd. in Helsinki. Oil is approaching the symbolic $50 level and breaking through that barrier increases positive sentiment, she said.

Stocks

The MSCI Emerging Markets Index climbed 1.5 percent to 799.68. The measure has risen 0.7 percent this year and trades at 11.5 times the projected 12-month earnings of its members, data compiled by Bloomberg show. The MSCI World Index of developed countries has gained 0.4 percent in 2016 and is valued at a multiple of 16.

Energy and technology companies rallied at least 1.6 percent as all 10 industry groups in the benchmark index advanced. The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong climbed 2.8 percent, the most in six weeks.

The Ibovespa rose 0.3 percent. The Micex Index gained 0.8 percent. The Russian state-controlled lender Sberbank PJSC led the advance in Moscow, rallying 3.5 percent after posting a record profit.

The Nigerian Stock Exchange All Share Index jumped 3.8 percent and three-month naira-dollar forward contracts climbed to 291 per dollar. That suggests traders see the currency falling close to that level in the period, compared with the current range of 197-199. The central bank signaled on Tuesday it would allow the naira to weaken, abandoning a currency peg.

Currencies

The MSCI Emerging Markets Currency Index climbed 0.2 percent. The won rose 0.8 percent, boosted by optimism that strength in the U.S. economy will shore up demand for South Korean exports, which have contracted for 16 straight months. 

Russia’s ruble gained 1 percent, the most in emerging markets, as oil advanced to $49.74 a barrel in London. Malaysia’s ringgit strengthened 0.5 percent. The Indian rupee climbed 0.6 percent, the most in two months, prices from local banks compiled by Bloomberg show. It has lost 1.8 percent in the last nine days, the longest stretch of declines since November 2007.

The yuan traded near a three-month low in Shanghai after the People’s Bank of China cut its reference rate for the currency to the weakest level since March 2011. Steep declines in the fixing in early January raised concern about the health of China’s economy, spurring a $7 trillion selloff in global equities in the first two weeks of that month. The earliest batch of private economic indicators point to sluggish growth in the nation for May.

Bonds

Russia’s $3 billion of Eurobonds due 2023 gained, sending the yield five basis points lower to 3.94 percent. The government sold $1.75 billion of 10-year securities at a yield of 4.75 percent on Tuesday, compared with initial guidance of 4.65 percent to 4.90 percent.

The extra yield investors demand to own emerging-market debt over Treasuries narrowed three basis points to 395, according to JPMorgan Chase & Co. indexes.

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