Emerging-Market Stocks Gain as China Rallies on Growth OutlookTaylor Hall and Srinivasan Sivabalan
Taiwanese shares gain on improving cross-strait relations
Romanian currency falls as protests spark premier resignation
Developing-nation stocks climbed for a fourth day as growing optimism that China’s economy is stabilizing outweighed concern that a possible increase in U.S. interest rates this year will damp demand for riskier assets.
The MSCI Emerging Markets Index increased 0.9 percent to 868.16. Stocks in Shanghai surged the most in seven weeks after the government unveiled its five-year plan to bolster the economy. The rally was also fueled by the central bank’s publication of five-month old comments from governor Zhou Xiaochuan saying a link between exchanges in Shenzhen and Hong Kong would start in 2015, before it became clear the remarks were made in May. A gauge of 20 currencies ended a three-day gain.
China’s growth should be no less than 6.5 percent in the next five years, President Xi Jinping said Tuesday. The nation’s equities have rallied 18 percent from this year’s low in August as investors became increasingly confident that the government has been able to stabilize an economy projected to expand at the slowest pace in 25 years in 2015. That optimism has offset concern that higher U.S. interest rates will lure money away from emerging markets as the dollar strengthens. The MSCI stock gauge trades at 11.5 times the projected 12-month earnings, a 29 percent discount to developed-nation shares.
“Emerging markets do look like a better bargain than developed markets,” Timothy Ghriskey, managing director and chief investment officer at Solaris Asset Management LLC in New York, said by phone on Wednesday. “We pulled out of emerging markets six months ago, and we certainly are looking at the opportunity.”
The developing-nation stock gauge has rallied 12 percent from the lowest level since 2009 in late August, narrowing its decline this year to 9.2 percent. Currencies have rebounded 2.6 percent from a record low in September. Futures traders pushed the odds of a December increase in U.S. interest rates to 56 percent on Wednesday after Fed Chair Janet Yellen said the economy is performing well and a liftoff next month remains a “live possibility.”
Valuations already reflect the impact of a Fed interest-rate increase, said Lisa Alexandersson, an emerging-market analyst at Nordea Bank AB in Copenhagen. She said she favors the Mexican peso and the Indian rupee in the next three to six months and expects the real will remain under pressure. The Brazilian currency weakened 0.8 percent on Wednesday, pushing its decline this year to 30 percent.
The Romanian leu retreated 1.2 percent to the weakest level against the dollar since May as Prime Minister Victor Ponta resigned after thousands of people flooded the streets of Bucharest in an unannounced anti-government protest. The demonstration came in the wake of anger at the deaths of 32 people in a nightclub fire last week.
The Taiwanese dollar gained 0.6 percent against the dollar amid optimism that improving cross-strait relations will boost the island’s economy. The Taiex Index jumped 1.7 percent to the highest level since July.
The Shanghai Composite rallied 4.3 percent, led by a 10 percent jump in China Life Insurance Co. Zhou’s comments about the exchange link appeared in a lengthy article dated Tuesday that focused on the need for Communist Party discipline. The central bank published it on its website website without any indication that the statements were old and later said by text message that they were taken from a speech on May 27. Hong Kong’s bourse said the program is still subject to regulatory approval.
Indonesian equities rose 1.8 percent before data on Thursday that analysts expect will show economic growth accelerated to 4.8 percent last quarter, compared with 4.67 percent in the previous three months.
The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed one basis point to 377 basis points, according to JPMorgan Chase & Co. indexes.