Emerging-Market Stocks Rally on Signs of Easing Political Risksby
MSCI developing-nation equity gauge rises most in a month
All industry groups climb as energy, consumer stocks lead
Fading political risks and wagers that recent declines have overshot the potential impact of a China slowdown lured investors back to emerging-market stocks.
Russian equities rallied the most in the world amid signs the need for a joint fight against terrorism is bringing President Vladimir Putin closer to his former foes. Turkish shares rebounded from this month’s low as the country moved toward the formation of a new government. Polish equities rose the most since Oct. 5 before the new premier addresses parliament on Wednesday. Brazil’s real advanced as the central bank stepped up support for the currency.
While China’s slowing growth and looming increases in U.S. borrowing costs dominated the headlines, political disputes underlying a hung legislature in Turkey and Russia’s stand-off against the West over Ukraine also contributed to the $4.5 trillion meltdown in emerging-market stocks since mid-June. As elections resolve some of those issues, Islamic State attacks that killed at least 129 people in Paris last week highlighted the urgency for world leaders to bridge their differences.
“There’s been a lot of pessimism since summer,” said William Jackson, an emerging-market analyst at Capital Economics Ltd. in London. “From the data that’s been coming in, there’s been no sign of the slowdown to match the fears. We will see a continuation of the relief rally if the economic data holds up.”
The MSCI Emerging Markets Index advanced 1.3 percent to 824.09, the biggest gain since Oct. 15. The gauge fell in seven of the past eight days, pushing its 14-day relative strength index near 30, a level some technical analysts and short-term investors interpret as a signal to buy. All 10 industry groups on the gauge rose on Tuesday, led by energy and consumer staples stocks.
Investors looking for bargains may find the valuations of emerging-market equities becoming attractive. Projected earnings in the gauge’s members account for 8.1 percent of its price, 2.9 percentage points more than a similar measure for advanced-nation shares.
Markets in Brazil, Russia, India and China “tend to overshoot on the way up and they tend to overshoot on the way down,” Mohamed El-Erian, the chief economic adviser of Allianz SE said on Bloomberg TV. “Smart investors who have been there for a while understand that that is when the investment opportunities are greatest.”
The Micex Index gained 2.7 percent to the highest level since March 3 in Moscow, while the dollar-denominated RTS Index jumped 4.6 percent. Five-year government bonds advanced, sending the yield seven basis points lower to 10.06 percent.
Putin instructed the Russian navy to work with French vessels “as allies” on the same day he vowed revenge for the Oct. 31 downing of a Russian airliner over Egypt that killed 224 people. For the first time, he acknowledged the tragedy was a terrorist attack. French President Francois Hollande urged a U.S.-Russian alliance and Putin met with President Barack Obama on Sunday at a global summit.
The Borsa Istanbul 100 Index climbed 0.1 percent. President Recep Tayyip Erdogan assigned AK Party leader Ahmet Davutoglu to be in charge charge of forming a new government, TV24 reported. The Nov. 1 election gave the AK party a decisive majority, ending months of wrangling under a caretaker government. The lira strengthened 0.9 percent against the dollar.
In Warsaw, the WIG 20 Index gained 1.8 percent, rising for the first time in four days. Prime Minister Beata Szydlo will deliver a speech to parliament on Wednesday, mainly to discuss the European policy on refugees after the Paris attacks.
Brazil’s real strengthened 0.6 percent versus the dollar. The country’s central bank plans to hold two extraordinary auctions for as much as $500 million in foreign-exchange credit lines to boost dollar liquidity, and also conduct its regular daily auctions of foreign-exchange swaps. The Ibovespa rose 0.9 percent.
The won halted a three-day slide and South Africa’s rand rose for a second day. A gauge of 20 emerging-market exchange rates added less than 0.1 percent. The premium investors demand to own emerging-market debt rather than U.S. Treasuries narrowed two basis points to 386, according to JPMorgan Chase & Co. indexes.