Emerging Currencies Post Biggest Weekly Gain Since 1998 on Fed

  • Indonesian rupiah, Russian ruble, Malaysian ringgit lead gains
  • Pimco, ANZ see renewed pressure from yuan devaluation, dollar

Emerging-market currencies had their strongest week in 17 years and stocks rallied as prospects for a U.S. interest rate increase in 2015 receded and oil traded around the highest level since late August.

An index tracking 20 developing-nation exchange rates climbed 3.5 percent this week, recovering from its biggest quarterly loss since 2011. Indonesia’s rupiah and Russia’s ruble were the best performers, with gains of at least 7.9 percent against the dollar. An MSCI gauge of emerging-market stocks delivered its best week in almost four years as global funds pumped a net $1.2 billion into shares in Brazil, India, Indonesia, South Korea, Taiwan and Thailand. Brent crude gained 9.4 percent to $52.65 a barrel, boosting shares in oil-exporting nations.

Trading in Fed futures indicated a 39 percent likelihood of an increase in U.S. interest rates in December, down from 60 percent a month ago, after minutes of the Federal Reserve’s latest policy meeting showed officials are concerned about China’s slowing growth and the risk of a stronger dollar weighing on U.S. exports. Pacific Investment Management Co., Australia & New Zealand Banking Group Ltd. and Commonwealth Bank of Australia said this week doesn’t mark the start of a turnaround in emerging currencies.

China Slowdown

Weak U.S. economic data “helped boost sentiment, and so has the turn in commodity prices,” said Per Hammarlund, the chief emerging-market strategist in Stockholm at SEB AB. “It’s as if all the worries about a sharp slowdown in China and low commodity prices have vanished. In fairness, many emerging-market currencies looked oversold in the short term and the correction that we are now seeing is a consequence of that.”

China, the world’s second-largest economy and the largest trade partner for several developing nations, is expanding at the slowest pace since 1990. The country will release data for September from next week. Exports probably dropped 6 percent from a year earlier, while inflation slowed to 1.8 percent, according to the median estimates of economists surveyed by Bloomberg.

Indonesia’s rupiah has jumped 9.2 percent against the greenback since Oct. 2, according to prices from local banks compiled by Bloomberg. The ruble strengthened 7.9 percent, Malaysia’s ringgit rose 6.9 percent, while the Colombian peso advanced 5.2 percent. 

Sharp Rally

Pimco, which oversees $1.52 trillion of assets, said Thursday it expects emerging-market currencies to come under renewed pressure and favors investments that will profit from their depreciation. The rally is unlikely to endure because of slowing growth and prospects of policy easing in Asia, according to Khoon Goh, a senior strategist at ANZ in Singapore.

“While a delay in Fed rate-hike expectations may have been the catalyst for the sharp rally in Asian currencies this week, we do not believe this is the start of a turnaround,” Goh wrote in a report on Friday. “We still see challenging times ahead for Asian currencies.”

The MSCI Emerging Markets Index climbed 1.3 percent to 859.32 on Friday, pushing its gain for the week to 6.9 percent. All 10 industry groups rose. Sasol Ltd. helped push a gauge of energy shares to a 14 percent weekly increase, the most since May 2009.

Russia, Brazil

Equity markets in Hungary, Russia, Poland and the Czech Republic rose at least 1 percent. The Ibovespa Brazilian stock benchmark gained 0.5 percent, while the real rallied for a second day, appreciating 0.6 percent against the dollar.

Hong Kong’s Hang Seng China Enterprises Index completed its best weekly surge since April as investors speculated the government will take more steps to boost the economy. Russia’s Micex Index climbed 7.3 percent this week, the largest increase since January.

“The Fed comments are prompting investors to come back to emerging markets,” said Gavin Parry, managing director of Parry International Trading Ltd. “That’s helped boost confidence.”

The MSCI developing-nation gauge has dropped 10 percent this year and is valued at 11.4 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has retreated 2.1 percent in 2015 and is valued at a multiple of 15.6.

The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed one basis point to 401 basis points, according to JPMorgan Chase & Co. indexes.

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