Emerging Stocks, Currencies Advance on Global Stimulus Outlook

Where Are Emerging Markets, Oil and Treasuries Headed?
  • Fed maintains U.S. rates, reiterates slow tightening cycle
  • Egyptian equities rise most in world as IMF talks progress

Emerging-market stocks rose to the highest level since China’s currency devaluation last year, while volatility fell to an 11-year low on optimism that earnings are improving and central banks remain supportive of growth.

Egyptian stocks rallied the most in the world after the government said it’s nearing the final stages of talks for an International Monetary Fund loan. Turkey’s benchmark index jumped to a one-week high, rising with the country’s bonds and currency on signs that a political crisis is easing. Information-technology companies got a boost from Apple Inc.’s earnings. Russian government bonds advanced for the first time in 11 days.

More than half of developing-nation companies that have reported financial results for the last quarter have beaten estimates, following similar positive momentum in the U.S. and Europe. Japanese Prime Minister Shinzo Abe on Wednesday announced plans for more than 28 trillion yen ($265 billion) in economic stimulus in an effort to prop up the nation’s economy. The Federal Reserve indicated that it will maintain a slow pace of U.S. interest rate increases after leaving them unchanged following its two-day meeting.

“The markets are still saying there are no rate hikes for the year,” Paul Christopher, global market strategist for Wells Fargo Investment Institute, said by phone. “If you’re an emerging-markets investor, maybe you’re thinking of taking some profits. But as long as the dollar remains in a range, there’s nothing to persuade you the trade is over.”

Traders now see a 45 percent probability of a Fed increase by the end of this year, down from 49 percent on Tuesday, futures trading indicates. Low U.S. borrowing costs have helped prop up emerging markets as investors seek higher returns in riskier assets.

Stocks

The MSCI Emerging Markets Index climbed 0.4 percent to 874.05, the highest level since Aug. 11. Six out of 10 industry groups rose. Ten-day historical volatility on the measure dropped to 3.6 percent, the lowest since January 2005.

The Ibovespa rose 0.1 percent in Sao Paulo, advancing for the first time this week. Vale SA led the Brazilian benchmark higher, jumping 3.4 percent after Goldman Sachs Group Inc. raised its estimates for iron-ore prices.

Turkey Rebound

The benchmark EGX 30 Index in Cairo advanced 5 percent to the highest since Aug. 11, after the Egyptian cabinet said the central bank governor and finance minister will finalize negotiations with an IMF delegation within a few days. Authorities are targeting $7 billion annually over three years under the program. Of that, the government plans to secure $12 billion from the IMF and the rest from bilateral accords and international institutions.

The Borsa Istanbul 100 Index rose 1.9 percent, gaining for the third time in four days. President Recep Tayyip Erdogan is considering withdrawing cases against opposition leaders to show his solidarity among politicians in the wake of the July 15 coup attempt, his press office said. Separately, Erdogan plans to meet Russian President Vladimir Putin to mend bilateral ties ruptured by the downing of a Russian war plane in November.

Apple suppliers Taiwan Semiconductor Manufacturing Co. Ltd. extended a record high and Hon Hai Precision Industry Co. climbed to a one-year high after the iPhone maker reported a smaller-than-estimated decline in revenue.

Chinese stocks retreated after a report in the 21st Century Business Herald said the country’s banking regulator is considering tightening curbs on the $3.6 trillion market for wealth-management products. The Shanghai Composite Index closed down 1.9 percent.

Currencies

The MSCI Emerging Markets Currency Index rose 0.1 percent. The Turkish lira strengthened 1 percent against the dollar. South Africa’s rand gained 0.7 percent.

Malaysia’s ringgit fell 0.5 percent, amid lingering concern over several international probes into alleged wrongdoing at state fund 1Malaysia Development Bhd.

The yield on 10-year year ruble bonds fell four basis points to 8.65 percent, the first decrease since July 12. The notes are helped by the currency’s stability thanks to support from exporters, said Nikolay Minko, an analyst at Sberbank CIB, the investment-banking arm of the nation’s biggest lender.

The premium investors demand to own emerging-market sovereign debt over U.S. Treasuries widened five basis points to 365, according to JPMorgan Chase & Co. indexes.

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