Emerging Stocks Advance to Nine-Week High as China Concern Fades

  • Property, auto shares climb in Shanghai as volumes increase
  • Currencies extend gain after biggest weekly advance since 1998

Emerging-market stocks rose to a nine-week high and currencies strengthened for a seventh day as concern eased that China’s economic slowdown will worsen and prospects for continued low U.S. interest rates helped buoy demand for riskier assets.

The advance in equities followed the biggest weekly increase in almost four years amid speculation the Federal Reserve won’t raise borrowing costs this year. Stocks are rebounding after a 28 percent meltdown between April and August when futures traders predicted a liftoff in 2015. Property and material companies in China jumped on Monday after Premier Li Keqiang said the nation will increase fiscal support for shantytown redevelopment.

Emerging vs. developed stocks performance since Aug. 10

“This is a bear-market reversal,” Tony Hann, a London-based money manager at Blackfriars Asset Management, which oversees about $350 million in emerging markets, said by e-mail. There is more “clarity” on U.S. rates, and in China “there has been government support measures for autos and property and speculation about support for gaming,” he said.

The MSCI Emerging Markets Index gained 0.7 percent to 865.23 on Monday. Shanghai-listed shares jumped 3.3 percent to their highest close in seven weeks. A gauge of 20 developing-nation currencies advanced less than 0.1 percent, following its biggest weekly gain in 17 years.

ETF Inflows

Investors added $936 million to U.S. exchange-traded funds that buy emerging-market stocks and bonds, erasing two weeks of losses. Stock funds collected $982.4 million and bond funds declined by $46.4 million in the week ended Oct. 9. India, Mexico and Russia led the gains.

The Thai baht and Hungarian forint led gains in currencies, each strengthening at least 0.5 percent against the dollar Monday. Russia’s ruble weakened 0.7 percent against the dollar as as oil, the country’s biggest export, slumped after OPEC reported that its members pumped the most crude in three years. Lukoil PJSC led a 1 percent decline in the Micex Index.

Brazilian markets were closed for a holiday.

China Rally

The Shanghai Composite Index rallied as trading volume increased amid speculation that China’s central bank will reduce interest rates or reserve-requirement ratios increased before data this week that may show slowing exports and decelerating inflation. The index has rebounded 12 percent from the August low as the government targeted support for important industries such as autos and property to boost growth.

The developing-nation stock gauge has fallen 9.5 percent this year and is valued at 11.4 times 12-month estimated earnings of its member stocks, compared with an average multiple of 11.3 for the past 10 years.

Gains across emerging-market stocks “can go on for a few weeks, maybe to the end of the year, but I just don’t see any fundamental improvement,” Hann of Blackfriars said. “Valuations are not low enough for me to think this is sustainable.”

Industry Groups

Seven of 10 industry groups rose in the MSCI Emerging Markets Index, led by raw-material and technology companies.

The lira weakened 0.5 percent. Islamic State is the primary suspect in bombings on Saturday that killed at least 97 people at a peace march, interim Prime Minister Ahmet Davutoglu told NTV television. He backed off from his earlier suggestion that Kurdish rebels might be to blame.

Infosys Ltd. dropped 3.9 percent in Mumbai after the software exporter reduced its dollar-denominated sales growth forecast as Chief Financial Officer Rajiv Bansal resigned. The S&P BSE Sensex fell 0.7 percent.

The premium investors demand to own emerging-market debt over U.S. Treasuries widened one basis point to 399 basis points, according to JPMorgan Chase & Co. indexes.

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