Emerging-Market Stocks Post Fourth Weekly Advance on Stimulus

  • China's central bank cuts lending rate to counter slowdown
  • Russian government bonds gain for longest stretch in 5 years

Emerging-market stocks rose for a fourth week, the longest streak of gains in six months, as an interest-rate cut in China and prospects for continued monetary stimulus in Europe spurred demand for riskier assets.

Tencent Holdings Ltd. advanced to a three-month high in Hong Kong as better-than-estimated earnings at Google parent Alphabet Inc. and Amazon.com Inc. spurred a rally in technology companies. The Ibovespa gained as Brazilian commodity exporters including iron-ore producer Vale SA advanced. The Micex Index increased and Russian government bonds advanced for a ninth week, the longest stretch in five years, as decelerating inflation supported the case for more interest-rate cuts.

The MSCI Emerging Markets Index rose 1.2 percent to 868.56 in New York, pushing its weekly gain to 0.4 percent. Developing-nation stocks are rebounding in October after five months of losses as futures traders have all but ruled out the possibility of a Federal Reserve interest rate at its meeting next week. The People’s Bank of China cut its lending and deposit rate by by 0.25 percent, the sixth interest-rate cut in a year. European Central Bank President Mario Draghi signaled Thursday that policy makers will consider bolstering stimulus before the end of 2015.

Relative Valuations

“Draghi’s comments have improved appetite for riskier assets and driven gains in emerging Europe,” said Maarten-Jan Bakkum, a senior emerging-markets strategist at NN Investment Partners in The Hague. “The rally in emerging-market stocks may continue as many investors still have underweight positions that they may want to close.”

Six of 10 industry groups in MSCI’s gauge gained this week, led by consumer staple stocks. The measure has fallen 9.2 percent this year and trades at 11.4 times projected 12-month earnings, data compiled by Bloomberg show. That’s about 30 percent cheaper than advanced-nation stocks. 

The Shanghai Composite Index advanced for a third week, gaining 1.3 percent on Friday before the rate cut amid expectations the Chinese government will announce measures to support economic growth after the Communist Party’s fifth plenary session starting Oct. 26. A gauge of property stocks jumped to the highest level since Aug. 20 as a report showed house prices increased in more than half of China’s 70 major cities. Hong Kong’s Hang Seng China Enterprises Index increased 1.3 percent on the last trading day of the week.

China ETF

The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, which tracks mainland traded Chinese stocks, rose 2 percent to $36.90 in New York in the five days through Friday, a two-month high.

Vale jumped as much as 5 percent on Friday in Sao Paulo, leading gains in Brazilian commodity exporters amid bets for stronger demand from the world’s top buyer of raw materials. Petrobras Brasileiro SA erased gains after crude slumped, while the Ibovespa slid 0.4 percent. The Latin American country lists China as its top trading partner.

Yields on Russian five-year government bonds have fallen 19 basis points this week as decelerating inflation gives policy makers more room to further reduce interest rates. Thirteen out of 29 analysts surveyed by Bloomberg see the central bank cutting the key rate by 50 basis points by Oct. 30. The ruble advanced 0.3 percent against the dollar to 62.38, paring this week’s decline to 1.8 percent.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries dropped nine basis points to 390 basis point, according to JPMorgan Chase & Co. indexes. A Bloomberg gauge tracking 20 developing-nation currencies declined 0.2 percent Friday, extending weekly losses.

Malaysia’s ringgit climbed 1.1 percent versus the dollar as Prime Minister Najib Razak presented a budget that seeks to boost domestic demand, spur private investment and speed up infrastructure projects. Moody’s Investors Service said before the budget that the country’s fiscal consolidation will remain intact.

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