Emerging Markets Gain as Brexit Overshadows U.S. Employment Data

  • Advance trims weekly retreat in benchmark gauge of 1.2%
  • Brazilian real, stocks rise on government 2017 budget plan

Emerging-market stocks advanced with currencies on Friday, trimming a weekly retreat, amid speculation policy makers will hold off raising interest rates even after the U.S. reported stronger than forecast jobs data.

Developing markets have swung between gains and losses over the past two weeks as investors assess prospects for central bank stimulus and economic growth in the aftermath of the U.K. referendum to leave the European Union. Even after U.S. jobs grew the most in eight months in June, traders still see only a 24 percent chance of a rate increase this year.

“This employment report is not going to move a needle significantly in terms of the rate hike,” Tim Ghriskey, who oversees $1.5 billion as managing director and chief investment officer at Solaris Asset Management, said by phone. “There’s a growing feeling at the Fed that low rates need to stay in place for an extended period of time given very sluggish global growth rates and the overhang of Brexit.”

Emerging-market equities reversed losses after the jobs report, with six of 10 industry groups advancing, while Brazil’s real led gains in developing-nation currencies as the government announced plans for a narrower budget deficit in 2017. The Mexican peso and Russian ruble climbed as Brent crude rebounded from a 5 percent decline on Thursday.

Stocks

The MSCI Emerging Markets Index rose 0.2 percent to 828.84, cutting its weekly decline to 1.2 percent. The gauge has advanced 4.4 percent this year and is valued at 11.9 times the 12-month estimated earnings of its constituents.

Brazil’s Ibovespa Index rose 2.2 percent, the highest close since May 12, as inflation slowed more than forecast and after the economic team of acting President Michel Temer said it would cut the budget deficit in 2017 to shore up the country’s finances following last year’s credit-rating downgrade to junk. Russia’s Micex reversed losses and gained 0.6 percent.

The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong lost 0.3 percent on Friday as the Shanghai Composite Index fell about 1 percent, its biggest drop since June 24, paring its weekly gain to 1.9 percent.

Friday’s losses come after the Shanghai gauge emerged as one of the world’s best-performing equity benchmarks since the Brexit vote. Recent gains were underpinned by expectations that Chinese authorities will take steps to support an economy that grew last year at its weakest pace in a quarter century.

Turkey’s Borsa Istanbul 100 Index fell 0.5 percent. Equity gauges in South Korea, Vietnam and Malaysia fell at least 0.4 percent.

Currencies

The MSCI Emerging Markets Currency Index rose 0.1 percent, reducing its weekly decline to 0.6 percent.

The ruble strengthened 1 percent on Friday as crude rebounded from a fall of almost 5 percent on Thursday, sparked by data that showed a global glut of oil supplies isn’t receding as quickly as expected. The Turkish lira gained, extending a five-day advance to 0.2 percent.

Mexico’s peso fell 0.8 percent, its worst five trading days in three weeks. The yuan depreciated 0.5 percent this week as South Korea’s won fell 1.4 percent and the Malaysian ringgit lost about 0.9 percent.

Bonds

The premium investors demand to own emerging-market bonds rather than U.S. Treasuries fell two basis points to 379, bringing the week’s decline to three basis points, according to JPMorgan Chase & Co. indexes.

South African bonds fell, with the yield on 10-year government debt declining to 8.69 percent. Russian 10-year notes slumped on Friday while Polish debt gained. Turkish bonds fell during the week, with the yield on 10-year debt rising 9 basis points as investors fled to safe assets amid post-Brexit anxiety.

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