Emerging-Market Stocks End Two-Day Drop on Oil as BOE Eases

Malaysia Adds Ringgit Oil Link to Economic Concerns
  • Bank of England cuts benchmark interest rate to record low
  • Stock markets in Russia, Dubai climb as crude prices rebound

Emerging-market stocks and currencies rose for the first time in three days after the Bank of England said it would lower its benchmark interest rate and oil continued its climb past $40 a barrel.

Equity markets in Russia and Dubai advanced at least 1.1 percent, helping emerging-market equities rebound from their biggest two-day drop in a month. South Africa’s rand rose to the strongest against the dollar since October 2015 and bond yields fell as early election results showed the ruling African National Congress is trailing the main opposition party in the four biggest cities. Brazilian assets gained the day before the Olympics open in Rio de Janeiro.

The Bank of England cut its benchmark interest rate to a record-low, adding to stimulus efforts from Europe to Japan that have helped keep money flowing into emerging markets. Oil’s bounce back above $40 a barrel is also rekindling the momentum in a rally that’s driven developing-nation stocks to outperform peers in industrialized countries this year.

“The slight increase in the oil price and Bank of England easing is boosting demand for riskier assets,” said Peter Kinsella, the head of emerging-market economics and foreign-currency research at Commerzbank AG in London.

The MSCI Emerging Markets Index climbed 0.9 percent to 876.04 after sliding 1.6 percent in the previous two days. All 10 industry groups advanced, led by a 1.9 percent advance in energy stocks. A gauge of developing-nation exchange rates climbed 0.3 percent.

The emerging-market equity benchmark has rallied 10 percent this year, compared with a 2.7 percent gain in the MSCI World Index of developed-nation stocks.

Election Boost

The rand climbed 1.5 percent, the best performer among major global currencies tracked by Bloomberg. The yield on five-year South African notes dropped eight basis points to 8.08 percent.

The Democratic Alliance, which has promised to end corruption and make it easier to do business had swayed urban voters in the country’s most populous cities as discontent grew over a slowing economy and a scandal-ridden ANC government.

“We’re seeing the emergence of a credible opposition in South Africa, which is good for democracy,” Kinsella said. “Things are looking a lot more constructive for South Africa from an investor’s viewpoint.”

For a QuickTake explainer on the election, click here

Stocks

Gazprom PJSC helped drive a 1.3 percent gain in Russia’s Micex Index. Stocks in Dubai jumped 1.2 percent, the most in two weeks. The Ibovespa rose 0.9 percent in Sao Paulo.

Hungarian equities jumped 2 percent, the most in nearly a month. Shares of OTP Bank Nyrt. surged after Russia’s Vnesheconombank was said to be considering the sale of its Ukrainian unit to the largest lender in Hungary, Kommersant reported.

Egyptian stocks rallied 1.9 percent to the highest level in more than a year as local funds increased their holdings to protect against a possible devaluation in the country’s currency, which is expected to be a condition of a a loan agreement with the International Monetary Fund.

Chinese shares advanced for a third day after the People’s Bank of China said Wednesday it would keep prudent monetary policy in the second half. The Shanghai Composite Index gained 0.1 percent.

Currencies, Bonds

The Polish zloty pared the biggest two-day rally against the euro in more than a year, dropping 0.1 percent, as analysts at Raiffeisen Bank International AG said some remaining uncertainty on plans to convert household mortgages limited the scope for further gains.

The Brazilian real and the Russian ruble advanced more than 0.7 percent against the greenback as Brent crude sold for more than $44 a barrel in London.

The premium investors demand to own emerging-market bonds rather than U.S. Treasuries was unchanged at 363 basis points, according to JPMorgan Chase & Co. indexes.

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