Emerging ETF Rallies as U.S. Jobs Data Outweigh Fed Bets

The iShares MSCI Emerging Markets Index exchange-traded fund jumped the most in two months after a better-than-estimated U.S. employment report outweighed concern the Federal Reserve will reduce economic stimulus.

The developing-nation ETF advanced 2.2 percent to $41.94 in New York. The MSCI Emerging Markets Index increased 0.4 percent to 1,002.20. The Borsa Istanbul National 100 Index climbed 1.9 percent, led by banks, while Russia’s Micex Index jumped the most in three weeks. India’s 10-year bonds fell for a seventh day on concern outflows from local-currency debt may quicken. Mexico’s peso led gains among 31 major currencies after the central bank kept borrowing costs at a record low.

Stocks joined a global rally after the U.S. jobless rate dropped to a five-year low as American employers added more workers than forecast. The report strengthened the case for the Fed to start reducing bond purchases as early as this month. The gauge for stocks in developing nations has slid as much as 16 percent since May 22, when the U.S. central bank signaled the program could be trimmed if the economy showed improvement.

“The market has already priced in what a post-tapering world will look like,” Kunal Ghosh, a San Diego-based portfolio manager at Allianz Global Investors, which has $436 billion in assets under management, said by phone. “At this point, it has become a non-issue for emerging-market countries when the actual tapering happens.”

Biggest Gains

All 10 groups in the MSCI Emerging Markets Index advanced today, led by health-care and financial shares. The broad measure trades at 10.5 times projected earnings, compared with the valuation of 14.5 for the MSCI World Index. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, tumbled 5.6 percent to 25.02.

The pickup in employment, combined with faster wage gains and more hours, provides American workers with the means to spend and signals companies are confident that demand will improve. Economists moved up forecasts for the first taper, saying the Federal Open Market Committee may start dialing down $85 billion in monthly bond buying at its Dec. 17-18 gathering rather than wait until January or March.

“What we saw was a slight clash between those who believe Fed may start tapering as late as March and those who bet it would start as early as this month,” Sebnem Uysal, who helps manage about 220 million liras ($108 million) at AZ Global Portfolio Management in Istanbul, said in an e-mail. “First there was selling, but those who saw the decline as a buying opportunity joined forces with short-coverers.”

Mexico, Brazil

Mexico’s peso jumped the most since Sept. 18 after the central bank kept the overnight lending rate at 3.5 percent amid signs economic growth is starting to pick up. Brazil’s Ibovespa gained for a second day as homebuilder Rossi Residencial SA jumped.

Russian stocks rose from a three-month low, paring the worst week since June, as OAO Novorossiysk Commercial Sea Port to OAO Gazprom jumped and after a technical indicator signaled losses were overdone. The Borsa Istanbul National 100 Index led gains among major emerging-market gauges as Turkiye Garanti Bankasi AS climbed 2.2 percent.

South Africa’s rand rebounded from a 4 1/2-year low to pare the biggest weekly fall in four that was fueled by the longest stretch of bond outflows on record. Foreign investors dumped South African bonds for a 12th straight day yesterday in the longest streak of sales since Bloomberg began compiling data from the Johannesburg Stock Exchange in 1996.

Tata Power

India’s S&P BSE Sensex rose a second week on bets state election results this weekend will confirm gains for the nation’s main opposition party. Tata Power Co. surged to a four-month high. The yield on the nation’s 8.83 percent securities due November 2023 jumped seven basis points to 8.85 percent in Mumbai, prices from the central bank’s trading system show. The rupee completed its best week since October.

China’s stocks fell as coal companies slumped after Shanghai reported record-high levels of pollution, while financial shares slid before trade data this weekend. China Shenhua Energy Co., the biggest coal producer, and a gauge of energy shares dropped the most in two weeks. Citic Securities Co. and Haitong Securities Co. sank more than 2 percent.

Thailand’s baht had a sixth weekly loss, the longest losing streak since June, on concern prolonged political unrest will hurt investor sentiment. Malaysia’s three-year government bonds posted the worst week since July.

The premium investors demand to own emerging-market debt over U.S. Treasuries fell three basis points, or 0.03 percentage point, to 332 basis points, according to JPMorgan Chase & Co.

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