Emerging Stocks Advance as Ruble Rises, Fed Lowers Rate ForecastNatasha Doff and Elena Popina
Emerging-market stocks gained for the first time in nine days and the ruble rebounded as Russia took emergency measures to support the currency and the Federal Reserve signaled that it’s no rush to raise U.S. interest rates.
The dollar-denominated RTS Index of Russian stocks gained 14 percent, the most among 93 primary equity gauges tracked by Bloomberg. The ruble rose as the government sold dollars. The Shanghai Composite Index advanced to a four-year high on speculation China will ease monetary policy. Geely Automobile Holdings Ltd. plunged the most in 12 years in Hong Kong after saying that full-year profit may halve because of the slumping ruble and declining sales.
The MSCI Emerging Markets Index added 0.9 percent to 918.15. The Fed said it will be patient on the timing of the first increase in benchmark U.S. borrowing costs since 2006 and lowered its interest-rate forecast for 2015.
“Saying that the Fed is going to be patient with those rate increases reduces some pressure for now, even though the Fed will raise interest rates eventually,” Timothy Ghriskey, chief investment officer at Solaris Asset Management LLC in New York, said by phone today. “If the interest rates stay low a longer period of time, this would be stimulative for the U.S. economy, and in turn affect the developing markets.”
The ruble strengthened 12 percent to 60.2205 per dollar, after falling to as low as 72.70. The central bank, which already drained $10 billion of its foreign currency reserves this month on currency support, will probably need to spend another $70 billion to stem the slide, according to a survey of economists. Crude oil rebounded on speculation that a slide in prices to a five-year low was excessive.
Russia has pumped in $87 billion for interventions and increased the benchmark interest rate to an 11-year high to restore confidence in the ruble, which has slumped 46 percent this year. The Micex Index, the country’s equity benchmark, has lost 6 percent in 2014. The meltdown spurred MSCI Inc. to say it is examining whether to exclude Russia from the emerging-markets measure.
“No one really knows what the ruble is worth,” Martial Godet, the head of emerging-market equity and derivatives strategy at BNP Paribas SA in Paris, wrote in an e-mail. “It has erased more than 10 years of real appreciation, and has become the cheapest emerging-market currency in real terms. So it is unlikely to go lower at current oil prices.”
The MSCI developing-nation gauge has lost 8.4 percent this year and trades at 10.7 times the projected earnings of its members, compared with 11.5 times in September. The MSCI World Index has gained 0.7 percent and is valued at a multiple of 15.1.
Seven out of 10 industry groups in the emerging-markets measure advanced today, led by energy and financial companies.
The Ibovespa gained 3.6 percent in Sao Paulo as incoming Finance Minister Joaquim Levy said the Brazilian government needs to reduce spending, fueling speculation that the new economic team will promote fiscal changes to restore growth in Latin America’s biggest economy.
Persian-Gulf stocks rallied as investors bet that the slump in equities has run too far. The Abu Dhabi Securities Market General Index advanced 5.1 percent, rebounding from a four-day, 15 percent slump.
The Shanghai Composite Index added 1.3 percent. The gauge has advanced 45 percent this year as investors speculated the central bank will reduce lenders’ reserve-requirement ratios after cutting interest rates for the first time in two years last month. The Hang Seng China Enterprises Index rallied 1.2 percent, halting a four-day retreat.
India’s S&P BSE Sensex Index fell 0.3 percent in a fifth day of declines, its longest losing streak since July.
Geely Automobile tumbled 17 percent after the company said the depreciation of the ruble resulted in an unrealized foreign-exchange loss from operations in Russia. Great Wall Motor Co., for which Russia is the biggest market outside China, lost 3 percent.
The South Korean won weakened 0.8 percent against the dollar as investors sought the relative safety of the U.S. currency on concern the turmoil in global markets will spread.