Emerging-Market Stocks, Currencies Rise as Brexit Concern Eases

  • Campaigns before referendum halted after lawmaker was slain
  • Ruble rises to one-week high as Brent crude prices rally

Emerging-market assets rose to pare weekly losses as investors bet that declines driven by concern about the potential impact of a British exit from the European Union were excessive.

Russia’s ruble led currencies higher as crude, the country’s biggest export, rallied. Petroleo Brasiliero SA, the Brazilian state-controlled oil company, paced gains on the Ibovespa. Greek stocks jumped the most in four months after euro-area finance ministers approved a 7.5 billion euro ($8.4 billion) loan to the debt-ridden nation. The premium investors demand to own emerging-market sovereign debt over U.S. Treasuries narrowed for the first time in seven days.

Developing-nation stocks and currencies rose on five days and fell on five days in the past two weeks as sentiment swayed between optimism about the Federal Reserve’s “lower-for-longer” policy and concern over how a British vote to leave the EU would impact the global economy. While many polls indicate an advantage for those advocating an exit, bookmakers’ odds attached a higher probability that the “remain” side will win.

“Markets are in a volatile mood,” said William Jackson, a London-based emerging-market analyst at Capital Economics Ltd., which projects a 25 percent gain in equities in the next two years. “Investors are sensing that perhaps some of the reaction to the polls was overdone because for most emerging markets, the impact of Brexit will probably be quite limited. Expectations of Fed tightening were pushed back earlier this month and the benefits may be starting to flow through again.”

Campaign Suspension

Both sides of the U.K. referendum suspended their campaigns after a lawmaker who had advocated voting to remain in the EU was killed. The pause in the flow of arguments for and against Brexit gave investors time to weigh the fundamental outlook for emerging-market assets beyond next week’s events.

“The markets should fare relatively better for the rest of the year as valuations have improved after recent losses and there is some stability in the growth outlook as well as oil prices,” Jackson said.

Stocks

The MSCI Emerging Markets Index rose 0.8 percent to 806.22, paring its retreat this week to 2.1 percent. All 10 industry groups advanced, with energy companies jumping the most.

The WIG 20 Index rose 1 percent in Warsaw. The BUX Index in Budapest added 1.7 percent. Prague’s PX Index headed for the biggest gain in four months, advancing 1.9 percent. Market prices in Europe mostly reflect Brexit risks, Paris-based asset manager Carlton Selection said.

The Ibovespa added 0.3 percent. Petrobras rallied 5.3 percent as other Brazilian raw-material companies including Vale SA and Gerdau SA also boosted the equity gauge.

Chinese stocks traded in Hong Kong rebounded, with the Hang Seng China Enterprises Index rising 0.9 percent to pare its weekly loss to 3.9 percent. The Shanghai Composite Index climbed 0.4 percent.

The ASE Index in Greece jumped 6 percent, ending a seven-day 15 percent slump. Euro-zone finance chiefs endorsed the loan disbursement at a meeting of the European Stability Mechanism, the 19-nation bloc’s firewall fund, in Luxembourg on Thursday. The payout will cover Greece’s debt-servicing needs as well as the clearing of some arrears.

Currencies

The ruble strengthened 1.4 percent against the dollar. South Africa’s rand gained 1.5 percent. Oil pared a weekly loss, rising 4.2 percent to $49.17 in London as a weaker U.S. dollar bolstered the appeal of commodities. South Korea’s won fell 0.2 percent in an erratic session, even after officials said speculation that North Korean leader Kim Jong Un had died was unfounded.

The MSCI Emerging Markets Currency Index climbed 0.4 percent, trimming its weekly retreat to 0.4 percent.

Bonds

South Africa’s 2026 bonds rose, sending the yield down six basis points to 9.06 percent. Polish, Hungarian and Turkish sovereign notes also climbed. The premium on emerging-market securities, as measured by JPMorgan Chase & Co. indexes, fell six basis points to 405.

“Growth deceleration may be at an inflection point for a number of developing countries,” said Gregory Saichin, who manages $2.4 billion as chief investment officer for emerging-market fixed-income at Allianz Global Investors Europe GmbH. “The top-down looks encouraging, supported by continued monetary accommodation. For oil and commodity countries, there is the perception that supply is being further constrained by lack of investment while demand is steady or growing.”

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