Emerging Stocks Rebound as Tencent Climbs to Record; Ruble Falls

Why Investors Should Brace for Emerging Market Rate Cuts
  • Technology shares lead gains as Tencent, Samsung rally
  • Ukraine bonds drop as Poroshenko warns of Russian invasion

Emerging-market stocks rose to a one-year high as minutes of the Federal Reserve’s last meeting tempered speculation U.S. interest rates will rise this year. Russian stocks fell amid warnings of heightened tension with Ukraine.

Technology shares led gains among 10 industry groups in the MSCI Emerging Markets Index as Tencent Holdings Ltd. jumped to an all-time high after earnings beat analysts’ estimates. Samsung Electronics Co. also surged to a record. Ukrainian bonds declined after President Petro Poroshenko warned a full-scale Russian invasion was possible. The Brazilian real and stocks fell after a vote on a bill to reduce the fiscal deficit was postponed.

Developing-market assets resumed rallies underpinned by a rebound in commodities and bets that policies by global central banks will remain accommodative. Fed officials saw little prospect of a sharp increase in price pressures, minutes of their last meeting showed, a day after New York Fed President William Dudley flagged the possibility of a tightening as soon as next month.

“The positive sentiment of the past weeks continues,” said Maarten-Jan Bakkum, a senior strategist at NN Investment Partners in The Hague, who favors stocks in India, Indonesia, Mexico, Colombia, Taiwan and Argentina. “What has helped is the more-dovish-than-expected Fed minutes.”

Most policy makers “saw relatively low risk that a further gradual strengthening of the labor market would generate an unwanted increase in inflationary pressures,” according to the minutes of the July meeting published Wednesday in Washington. Odds of an increase in U.S. borrowing costs by year-end currently stand at 47 percent, down from 51 percent on Tuesday, according to futures trading data compiled by Bloomberg.

Stocks

The MSCI Emerging Markets Index rose 0.7 percent to 916.4. The measure is up 15 percent this year and trades at 12.7 times its 12-month projected earnings. The MSCI World Index of developed-nation stocks has increased 4.5 percent in 2016 and is valued at a multiple of 16.4.

Tencent jumped 5.2 percent after net income climbed 47 percent in the second quarter. Samsung rallied 4.7 percent. The two stocks have the biggest weightings in the MSCI gauge and were the biggest contributors to today’s gain.

South Africa’s FTSE/JSE Africa All Share Index added 1.3 percent. Standard Bank Group Ltd. was the biggest gainer after Africa’s largest lender reported better-than-estimated earnings, leading the benchmark to its first advance this week.

Currencies

The MSCI Emerging Markets Currency Index rose 0.2 percent. The measure is headed for a 4.9 percent increase this month. 

Russia’s ruble gained 0.4 percent as oil rallied above $50, offsetting news that Ukraine isn’t ruling out a full-scale Russian invasion and may institute a military draft if the situation with its neighbor worsens.

Brazil’s real slipped 1 percent as a delay in voting on a budget bill raised concern that it could take longer than expected to rein in the fiscal deficit. The Malaysian ringgit rose 0.5 percent as oil gained for a sixth day in New York.

Bonds

The yield on Ukraine’s dollar bond due September 2019 jumped 18 basis points to 8.37 percent, the highest since June.

The premium investors demand to own emerging-market debt over U.S.Treasuries was unchanged at 335 basis points, according to JPMorgan Chase & Co. indexes. That’s within three basis points of the lowest since June 2015 reached on Tuesday.

Turkish 10-year note yields rose 10 basis points to 9.84 percent, the highest level in almost two weeks. The yield on similar-maturity Russian government bonds dropped five basis points to 8.33 percent.

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