Emerging-Market Stocks Post Best Week Since March on China Data

What's Behind the Rally in Emerging Market Stocks?
  • Taiwan bourse enters bull market as earnings help lure inflows
  • Lira plunges at Turkish army says it seized control of country

Emerging-market stocks posted their biggest weekly gain in four months as data showed China’s economy expanded more than forecast amid prospects for looser monetary policy worldwide.

Telecommunications and consumer-discretionary companies lifted the MSCI Emerging Markets Index to an eight-month high. A gauge of mainland Chinese equities posted best weekly gain in four months. Taiwanese stocks entered a bull market. The premium investors demand to own emerging-market bonds rather than U.S. Treasuries was the narrowest in a year. The lira plunged the most in eight years after Turkey’s army said it seized power and Prime Minister Binali Yildirim vowed to resist.

Emerging-market stocks rose to their highest valuations in more than a year as investors bid up shares on bets some of the world’s biggest economies will act to limit the fallout from Britain’s vote to leave the European Union. Foreign funds have bought almost $4 billion of equities this week in India, Indonesia, the Philippines, South Korea, Taiwan and Thailand, data compiled by Bloomberg show.

“The window for emerging markets is extending,” said Bhanu Baweja, the London-based head of emerging-market cross-asset strategy at UBS. “‘You’re getting so much good news from elsewhere. China was the one thing that could have scuppered the good news for emerging markets, and this data doesn’t suggest that time is now.”

China Growth

China’s gross domestic product rose 6.7 percent in the second quarter from a year earlier, compared with a projection of 6.6 percent in a Bloomberg survey, and in line with the government’s growth target of at least 6.5 percent for the full year. 

Bank of England Chief Economist Andy Haldane said on Friday policy easing will likely be required in August to “protect the economy.”

The MSCI Emerging Markets Index added 0.2 percent to 867.84, bringing the weekly gain to 4.7 percent, the most since the five days that ended March 4. Its 14-day relative-strength index climbed past 66, approaching the threshold of 70 that some traders see as a signal that a rally is about to reverse.

The developing-nation equity gauge has advanced 9.3 percent this year and trades at 12.3 times its 12-month projected earnings, the highest level since May 2015. The MSCI World Index has gained 2.3 percent and is valued at a multiple of 16.2.

Taiwan Bull Market

Seven out of 10 industry groups in the emerging-market benchmark rose Friday. Largan Precision Co. jumped 9.9 percent in Taipei. The benchmark Taiex index climbed 0.9 percent to close more than 20 percent above a three-year low touched on Aug. 24, as global investors poured cash into the island’s equities, drawn by upbeat earnings.

Samsung Electronics Co. rose 1.2 percent to a three-year high in Seoul. The Korean company is in talks with BYD Co. about investing in the Chinese electric-car manufacturer. BYD jumped 5.2 percent in Hong Kong.

The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong increased 0.4 percent, taking gains this week to 6 percent, while the Shanghai Composite Index posted its third weekly advance.

The Chinese data suggests the economy is responding to stepped up monetary and fiscal policy support. Speculation that central bankers will boost stimulus has underpinned equities in recent weeks, with mainland shares ranking among the world’s best performers since Britain’s June 23 vote to leave the European Union.

Infosys Drops

The Jakarta Composite Index climbed 0.5 percent after Indonesia’s June exports data came in better than economists estimated. Philippine stocks reached the highest level in 15 months, while stock gauges in Malaysia and South Korea rose at least 0.4 percent.

Infosys Ltd. tumbled 8.8 percent in Mumbai, the most since April 2013, after the Indian software exporter cut its annual sales forecast. The S&P BSE Sensex slid for the first time in five days. The Sensex entered a bull market on Monday, rebounding 21 percent from a low reached in February.

The PX Index in Prague rose 2.2 percent to a five-week high as Erste Group Bank AG and O2 Czech Republic gained. Poland’s WIG20 Index posted the biggest weekly advance since February, rallying 3.2 percent. The Ibovespa gained 0.2 percent in Sao Paulo, pushing the five-day gain to 4.6 percent.

Currencies

The lira plunged the most in eight years, weakening 4.6 percent to 3.0157 per dollar as Turkey’s army says it seized power and President President Recep Tayyip Erdogan asserted that he remains in control.

The MSCI Emerging Markets Currency Index declined 0.1 percent, reducing its weekly advance to 1 percent.

“There is a degree of week-end profit-taking in currencies after another decent rally this week,” said Christopher Shiells, a senior emerging-markets analyst at Informa Global Markets. “We just need some extra risk impulses to get the rally going again.”

The ruble declined 1 percent against the dollar. The South African rand dropped 2.4 percent. Russia’s ruble slid 1 percent.

The spread on emerging-market bonds over U.S. Treasuries fell five basis points to 349, pushing the weekly decline to 28 basis points, according to JPMorgan Chase & Co. indexes.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE