Emerging Stocks Post Longest Rally Since April on Fed Outlook

  • Energy shares advance most in MSCI Emerging Markets Index
  • Russian ruble ends two-day decline as Brent crude rallies

Emerging-market stocks rose for a fourth day, the longest winning streak in more than five months, as commodity prices jumped and traders withdrew bearish bets amid mounting speculation that the Federal Reserve won’t raise U.S. interest rates until 2016.

The MSCI Emerging Markets Index rose 2.1 percent to 821.26, pushing the four-day advance to 5.8 percent. The ruble led gains in currencies, strengthening 1.8 percent against the dollar as Brent crude climbed above $49 a barrel. The dollar-denominated RTS Index surged 5.3 percent, the best performance among 93 primary equity indexes tracked by Bloomberg, as data showed a surprise deceleration in Russian inflation. Brazilian stocks rallied to a two-week high and the real gained for a second day.

Emerging-market stocks and currencies have rallied since the Fed, at its meeting last month, decided to postpone its first borrowing-cost increase in nine years amid signs the U.S. economic recovery may be faltering. Higher U.S. interest rates are expected to draw money away from riskier assets in developing nations as the dollar strengthens. Futures traders on Monday increased the odds of a March 2016 liftoff as a report showed growth in the country’s services industry cooled last month. Short interest in the iShares MSCI Emerging Markets ETF fell to 7.1 percent of outstanding shares as of Friday, the lowest level since late July, data compiled by Bloomberg and Markit show.

Russia Inflation

“We are clearly seeing short covering and some closing of underweights across the board and probably some people willing to look for the odd bargain,” Nathan Griffiths, a senior emerging-market equities manager who helps oversee about $1.2 billion at NN Investment in The Hague, said by e-mail.

The ruble appreciated to 64.82 per dollar, ending a two day decline. Oil, Russia’s biggest export, rallied after a decline in the number of rigs drilling in the U.S. continued a slowdown in production that promises to reduce a global glut.

The RTS Index rallied to a two-week high. Russian consumer-price growth slowed to 15.7 percent from a year earlier, compared with a median estimate of 15.8 percent among 18 economists surveyed by Bloomberg. The Russia Services Business Activity Index rose to 51.3 in September from 49.1 in August, according to a statement by Markit Economics. The median estimate of three economists surveyed by Bloomberg was for 49.5. The gauge has been above the 50 threshold that separates growth from decline in three of the past five months.

Energy, Raw Materials

Itau Unibanco Holding SA jumped 2.1 percent. The Brazilian lender contributed the most to a 1.2 percent gain in the Ibovespa. The real rose 0.5 percent to the strongest level against the dollar since Sept. 17.

All 10 industry groups in the emerging-stocks measure rose, led by energy and raw-material stocks. The Bloomberg Commodity Index jumped 1 percent, pushing its two-day advance to 1.9 percent. A gauge tracking emerging-country currencies increased 0.7 percent in a second day of gains. The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed 14 basis points to 419 basis points, according to JPMorgan Chase & Co. indexes.

ETF Outlows

MSCI’s developing-markets stock index has declined 14 percent in 2015 and is trading at 11 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has fallen 4.6 percent this year and is valued at a multiple of 15.2.

Outflows from U.S. exchange-traded funds that invest in emerging markets more than doubled last week, with redemptions exceeding $12 billion in the third quarter. Taiwan led the losses in the five days ended Oct. 2.

South African stocks climbed for a fourth day, pushing the benchmark index up 2.2 percent, and the rand gained 0.9 percent against the greenback. In Warsaw, the WIG 20 Index jumped 2.6 percent, while the zloty rose less than 0.1 percent against the euro. The National Bank of Poland will hold its benchmark rate at 1.5 percent at meeting Tuesday, according to all 36 economists in Bloomberg survey.

The Hang Seng China Enterprises Index increased to a two-week high as China Life Insurance Co. and Ping An Insurance Group Co. gained 2.9 percent.  Markets in mainland China have been closed since Thursday for holidays.

China Stimulus

Chinese policy makers are increasing targeted stimulus after reductions in interest-rate and reserve ratio requirement failed to reverse an economic slowdown. The nation’s growth will slow to 6.8 percent this year, below the government’s goal of 7 percent, according to the median of economist estimates compiled by Bloomberg. The People’s Bank of China reduced the minimum home down payment for first-time buyers in cities without purchase restrictions last week, buoying shares of developers.

Indian shares rose the most since January, pushing the The S&P BSE Sensex Index up 2.2 percent. Tata Motors Ltd. surged 6.1 percent after the company said U.S. sales of Jaguar Land Rover jumped 61 percent last month. 

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