Emerging Asset Price Swings Widen as Investors Weigh Stimulus

Updated on
  • Mexican peso weakens as poll shows Donald Trump ahead in Ohio
  • Gauge of currency volatility at highest level since late June

Price swings in emerging-market currencies and stocks widened as investors assess global central bank policies supportive of risky assets before a key Federal Reserve meeting next week.

The JPMorgan Emerging Market Volatility Index, a measure of price fluctuations in currencies, is hovering around 11 percent, up from a one-year low of 2.8 percent in late July. Thirty-day historical volatility in MSCI Inc.’s developing-nation equity benchmark has risen to 14 percent after touching the lowest level this year on Aug. 19.

Developing-nation assets have pulled back after 15 weeks of inflows into exchange-traded funds helped drive stocks to a 13-month high and bond yields to a three-year low. The future trajectory for developing-country assets depends largely on when the Fed will raise interest rates again. Low borrowing costs in the U.S. and other developed nations have supported demand in emerging markets as investors seek higher-yielding securities.

“We think the environment, despite the recent volatility, still is one where abundant liquidity and a moderate rate of growth in the developed world should support risk-taking,” said Jorge Mariscal, the New-York based chief investment officer for emerging markets at the wealth management unit of UBS Group AG. The unit is overweight U.S. and emerging-market equities.

Morgan Stanley analysts said on Wednesday it’s unlikely emerging markets will experience the same level of volatility that they did during the so-called taper tantrum when the Fed reduced its quantitative easing program.


“There is much more synchronicity to the global growth,” analysts led by Gordian Kemen, said in a report. “Emerging markets are also doing better in absolute terms as external vulnerabilities have been reduced and GDP growth has picked up.”

The past 10 weeks of inflows to emerging-market debt funds were the biggest ever for a similar period, Bank of America Merrill Lynch Global Research said in a report. 

The MSCI Emerging Markets Index fell 0.1 percent to 885.14 in New York, after rising as much as 0.1 percent. The gauge is valued at 12.3 times the 12-month estimated earnings of its members. That compares with a multiple of 15.8 for the MSCI World Index of developed-nation equities.

Russia, Brazil

The Micex Index closed little changed in in Moscow after swinging between a decline of 0.4 percent and a 0.3 percent gain. Oil, Russia’s biggest export, fell below $46 a barrel in London amid speculation that a drop in U.S. crude inventories is temporary, and supplies will swell again.

The Ibovespa advanced 0.4 percent, rebounding from a six-week low in Sao Paulo as cheap valuations lured investors to Latin America’s largest economy. Lender Banco Bradesco SA, trading at the lowest price-to-earnings ratio in two months, was among the biggest contributors to the benchmark equity index’s advance.

China’s Shanghai Composite Index slumped 0.7 percent to a month low while the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong lost 0.3 percent. Better-than-expected economic data on Tuesday fueled speculation China’s central bank will refrain from adding monetary stimulus.

The MSCI Emerging Markets Currency Index was little changed after rising as much as 0.1 percent, trading near the lowest level this month.

Mexican Peso Weakens

Mexico’s peso lost 1 percent versus the greenback as a poll showed Republican presidential candidate Donald Trump five points ahead of Hillary Clinton in Ohio. Every U.S. president elected since 1964 has won the state. Mexico’s currency has repeatedly declined when Trump’s election outlook improves because the economy is closely linked to the U.S. and trade between the two countries has grown five-fold to more than $500 billion in goods annually since 1994. The poll was taken Friday through Monday, amid renewed concern about Clinton’s health.

The yuan rose 0.1 percent as China’s central bank boosted its cash injections to a five-month high, fueling speculation that it is looking to steady the nation’s financial markets. The ruble strengthened 0.2 percent.

The premium investors demand to own emerging-market debt over U.S. Treasuries widened nine basis points to 343, according to JPMorgan Chase & Co. indexes.

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