Emerging Market Stocks Rally With Currencies on Fed Rate OutlookNatasha Doff and Sharon Cho
Emerging-market stocks rose for a second day and currencies strengthened after the Federal Reserve said interest rates will remain low for some time. Russia’s ruble gained as prospects grew for a cease-fire in Ukraine.
The MSCI Emerging Markets Index advanced 0.5 percent to 1,049.94. Equity gauges in Dubai and Turkey rallied at least 1.2 percent. The Micex Index advanced to a one-week high in Moscow, and the ruble appreciated 0.5 percent versus the dollar. Brazil’s stock market was closed for a holiday.
The Fed said yesterday growth in the U.S. economy is bouncing back and interest rates are expected to stay low for a “considerable time” after the end of bond purchases. JPMorgan Chase & Co. said today it’s confident the emerging-markets equity bull market will continue into the second half and earnings growth will quicken next year.
“No pressure on U.S. long-term yields is positive for EM FX and equities,” Martial Godet, the head of emerging-market equity and derivatives strategy at BNP Paribas SA in Paris, said by e-mail. “The correlation between EM FX and risky assets versus U.S. long-term yields is still strong.”
The developing-nation gauge has rallied 4.7 percent this year and trades at 11 times 12-month estimated earnings, according to data compiled by Bloomberg. The MSCI World Index has risen 5.3 percent and is valued at a multiple of 15.2.
Emerging markets are joining the “axis of easing” with Chile, Hungary and Russia likely to join Turkey and Mexico in cutting interest rates, JPMorgan strategists led by Adrian Mowat wrote in a report. Equities in Russia were upgraded to overweight.
The ruble climbed to 34.3768 per dollar and the benchmark Micex Index increased 0.1 percent to the highest since June 11.
Ukrainian President Petro Poroshenko will meet government officials from the country’s conflict-wracked regions as he tries to build support for his proposed unilateral cease-fire and end three months of clashes.
The offer of a temporary truce is signaling a change of tack by the leader, who’s struggled since his inauguration on June 7 to quell the violence rocking Ukraine’s easternmost regions that left hundreds dead. The UX Index increased 0.6 percent, while the hryvnia added 0.9 percent versus the dollar.
Turkey’s stock index advanced 1.2 percent, led by Turkiye Garanti Bankasi AS. A continuation of monetary easing benefits the nation, as it has the largest current-account deficit among emerging markets, Murat Gulkan, managing director at Istanbul-based Unlu Portfolio Management, said by phone.
Fed Chair Janet Yellen told reporters at the end of a two-day meeting in Washington that accommodative monetary policy, rising home and equity prices and the improving global economy should help stoke above-trend growth in the U.S.
Policy makers reiterated that they will probably “reduce the pace of asset purchases in further measured steps” and will keep rates low after the bond buying ends.
Dubai’s DFM General Index, the world’s best-performing stock market this year in dollar terms, rose 1.6 percent, led by Emaar Properties PJSC, developer of the world’s tallest skyscraper. South Africa’s FTSE/JSE Africa All Share Index gained 1.1 percent to a record high.
All 10 industry groups in the developing-nation index advanced, led by raw-material producers and consumer-staples companies. A measure tracking developing-nation currencies climbed 0.1 percent, taking a two-day jump to 0.5 percent.
The Shanghai Composite Index tumbled 1.6 percent amid concern new share sales will divert funds from existing shares and a property slowdown will hurt economic growth. The Hang Seng China Enterprises Index dropped 0.9 percent.
Regulators are restarting the market for initial public offerings after a four-month halt in new deals, with at least four companies marketing their shares to investors this week.
The premium investors demand to own developing-nation debt over U.S. Treasuries fell three basis points to 268 basis points, according to JPMorgan indexes.