Emerging Stocks Post Third Weekly Gain Amid Fed Delay Outlook

  • Chinese shares post biggest weekly increase since June
  • Russian government bonds extend rally on rate-cut bets

Emerging-market stocks posted the longest stretch of weekly gains since April as Chinese shares rebounded to the highest level in two months and investors became increasingly confident that the Federal Reserve will refrain from raising U.S. interest rates this year.

The Shanghai Composite Index rose amid speculation the government will accelerate reforms of state-owned companies. Russian government bonds extended the longest stretch of weekly gains since 2010 as the ruble’s rally boosted speculation the central bank will resume interest-rate cuts. Turkey’s lira slid after the Turkish military said it shot down an aircraft on the Syrian border. The real weakened and the Ibovespa slumped this week on concern Brazil will be unable to shore up its finances.

The MSCI Emerging Markets Index rose less than 0.1 percent to 865.28 in New York, bringing its five-day gain to 0.7 percent. The gauge has advanced for three weeks in a row. Odds of a December liftoff in U.S. interest rates have fallen to 32 percent from 46 percent more than a month ago, when the Federal Reserve held off raising the near-zero borrowing costs that have supported demand for riskier assets. Data Friday showed a drop in U.S. factory output and a better-than-forecast improvement in consumer sentiment.

The gains in emerging-market assets “triggered by a disappointing U.S. labor market report published at the beginning of October continued this week amid fading expectations that the Fed will raise interest rates this year,” Piotr Matys, a strategist at Rabobank in London, said by e-mail.

Relative Value

Fed Bank of New York President William C. Dudley said Thursday that he favors raising interest rates later this year if his forecast is met. A report yesterday showed U.S. consumer prices excluding food and fuel rose more than forecast in September.

The MSCI developing-markets index, which has slumped 9.5 percent this year, is trading at 11 times projected 12-month earnings, according to data compiled by Bloomberg. The MSCI World Index has declined 1.5 percent in the period and is valued at a multiple of 15.7.

Seven out of 10 industry groups in the emerging-stocks measure rose Friday, led by consumer staples. A Bloomberg index of 20 developing-nation currencies weakened 0.5 percent, erasing its gain for the week. The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed five basis points to 396 basis points, according to JPMorgan Chase & Co. indexes.

Brazil, Russia

The real weakened 4.1 percent against the dollar this week, while the Ibovespa retreated 4.3 percent. Officials will revise this year’s budget target for the third time, forecasting a deficit excluding interest payments of 0.3 percent of gross domestic product, worse than the current goal of a 0.15 percent surplus, according to a report by Folha de S. Paulo.

Yields on Russia’s five-year local-currency debt fell 35 basis points in the past five days as bonds gained for the eighth straight week. Forward-rate agreements suggest the Bank of Russia will lower interest rates in the next three months, marking a reversal in expectations after policy makers kept borrowing costs on hold on Sept. 11 to avoid stoking inflation as the ruble tumbled. The ruble gained 0.2 percent against the dollar Friday, pushing its weekly gain to 0.4 percent.

China Rebound

The Hang Seng China Enterprises Index climbed 0.8 percent. The Shanghai Composite advanced 1.6 percent, bringing this week’s gain to 6.5 percent. 

The Shanghai Composite has risen 16 percent from an August low amid speculation that policy makers will introduce more measures to boost growth after a rout in equities erased almost $5 trillion of market value. SOE reform has become a catalyst for the market after the government this week announced plans to reorganize the telecom industry and promote price changes in the utilities sector. 

The Turkish lira fell 0.4 percent against the dollar. Turkey’s state-run news agency released images of a damaged unmanned drone at the site of a suspected crash near the Syrian border.

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