Emerging Assets Gain as Investors Bet Fed Holds Interest Rates

  • U.S. emerging-market ETF net inflows rise for a sixth week
  • Bond premium over U.S. treasuries falls to lowest in 11 months

Emerging-market assets rose for a third day as a hiring surge in the U.S. spurred confidence in the world’s biggest economy, bolstering stock markets from China to Poland.

Exporters led gains as Taiwan Semiconductor Manufacturing Co. rose to a record. A gauge of Chinese shares traded in Hong Kong jumped the most since May. Equities in India and Thailand neared bull-market territory. South Korea’s won and Malaysia’s ringgit led increases in currencies while a fall in the price of Brent crude pulled Russia’s ruble and the Brazilian real down. The premium investors demand to own emerging-market bonds rather than U.S. Treasuries fell to the lowest level in 11 months.

Developing assets tracked advances in global markets after the S&P 500 Index reached a record high as investors responded to data from Friday showing U.S. jobs grew the most in eight months in June. Traders are betting that U.S. borrowing costs will stay at 0.25 percent for at least a year as the Federal Reserve focuses on how the U.K. decision to leave the European Union impacts the global economy.

“It’s a follow through from the payroll data in the U.S.,” said Michael Wang, a strategist at hedge fund Amiya Capital LLP in London, who favors Mexican and South Korean stocks. “The market is taking it as it a positive scenario for emerging markets: a strong number is reassuring that U.S. growth is not faltering, but not strong enough to alter materially expectations that the Fed will be in a wait-and-see mode for some time.”

Investors added money to U.S. exchange-traded funds that buy emerging-market stocks and bonds for the sixth straight week, as net inflows exceeded $5 billion during the streak.

Stocks

The MSCI Emerging Markets Index rose 2.2 percent to 846.73, capping a three-day advance of 3.4 percent. The gauge has climbed 6.6 percent this year and trades at 12.1 times its projected 12-month earnings. The MSCI World Index is up 0.8 percent in 2016 and is valued at a multiple of 16.

All ten industry groups in the developing-nations stock measure gained, led by material and energy companies. Taiwan Semiconductor climbed 3.3 percent in Taipei, while Samsung Electronics Co. closed at a 15-month high in Seoul.

Poland’s WIG 20 increased 2.4 percent as Enea SA gained 5 percent. Markets in the Gulf states reopened after the Eid holiday with a gauge of shares in Gulf Cooperation Council countries gaining 0.4 percent, near a two-month high. Markets in the Czech Republic and South Africa rose at least 1.1 percent.

Russia’s Micex Index gained 1 percent in Moscow, with Alrosa PJSC jumping the most in three weeks after the government raised $816 million from the sale of a stake in the world’s largest diamond miner.

The Hang Seng China Enterprises Index jumped 2 percent after sliding 2 percent last week. The Shanghai Composite Index climbed 0.2 percent on Monday. China’s factory-gate deflation eased for the sixth straight month in June, adding to evidence that falling prices have turned a corner after more than four years of declines.

The S&P Sensex Index surged 1.8 percent in India, the highest close since Aug. 20. Indian shares have rallied from a low reached in February as foreigners snapped up shares at the fastest pace in four years. Thailand’s SET Index closed at the highest level since July 2015, shy of a 20 percent rallies from recent lows that would indicate a bull market. Equity gauges in Indonesia, the Philippines, Taiwan and South Korea rallied at least 1.2 percent.

Currencies

The MSCI Emerging Markets Currency Index climbed for a third day, rising 0.5 percent.

The won climbed 1.3 percent after falling 1.4 percent last week, data from local banks compiled by Bloomberg show. The ringgit rose 0.9 percent to the highest level in more than two months, followed by a 0.4 percent gain in India’s rupee and the Thai baht.

Bonds

The premium investors demand to own emerging-market bonds rather than U.S. Treasuries fell six basis points to 370, the lowest level since August, according to JPMorgan Chase & Co. indexes. Societe Generale SA said today it raised emerging market sovereign credit to market neutral as short-term prospects have improved following the U.K. vote on leaving the EU.

The global search for bond returns has pushed Ukrainian government debt to highs not seen since the first bullets were fired amid anti-government protests on Kiev’s central Maidan square more than two years ago. The yield on the country’s three-year dollar debt fell below 8 percent on Monday for the first time since January 2014, when pro-Russian president Viktor Yanukovych was still clinging to power and the Crimean peninsula was part of Ukraine.

Indonesian bonds gained, pushing the yield on 10-year notes down 23 basis points from July 1, the most since October, following a week-long holiday. The yields are at a level last seen on March 2, 2015.

Polish bonds rose for a second day, pushing yields on 10-year debt to the lowest since April 4 while South African bonds rose for a fourth day, with the yield on 10-year notes falling 10 basis points to 8.60 percent, the lowest level since the end of November.

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