Emerging Markets Rally After Fed Minutes Allay Rate-Pace Concern

  • Fed minutes signal slow pace in raising U.S. borrowing costs
  • Russia's ruble weakens for the first time in four days

Emerging-market stocks climbed the most in a month and currencies from South Korea to Brazil strengthened as Federal Reserve minutes signaled policy makers backed a gradual pace of interest-rate increases.

Shares in India rebounded from a two-month low, Russian stocks made a fourth straight gain and equities in Dubai ended their worst run of weekly losses since September amid speculation the liftoff in U.S. rates won’t spur a selloff in riskier assets. South Korea’s won climbed the most in a month, while Mexico’s peso and Turkey’s lira jumped to a two-week high.

Developing-nation equities are on course for a weekly advance after the Fed said in minutes from its October meeting that “it may well become appropriate” to raise borrowing costs in December, but the pace of tightening wouldn’t be quick. Concern that the first increase in U.S. rates since 2006 would damp the allure of higher-yielding assets amid a deepening slowdown in China spurred a selloff in emerging markets last quarter. 
“The worst-case scenario for emerging markets would be a Fed that needs to hike rates fast,” said Maarten-Jan Bakkum, a senior emerging-markets strategist at NN Investment Partners in The Hague. “Yesterday’s comments suggest that the Fed will remain cautious and that there is no need to hike rates rapidly after the first move in December. That is good for EM because outflows might remain modest only in this scenario.”

The MSCI Emerging Markets Index rose 1.7 percent to 837.14, the steepest advance since Oct. 15. The benchmark has slumped 12 percent this year and is valued at 11.3 times its 12-month estimated earnings, compared with a 0.5 percent decline in the MSCI World Index of developed countries, which trades at a multiple of 16.1.

The Malaysian ringgit climbed 1 percent and South Korea’s won added 0.9 percent. The real rose 1.3 percent in its fourth straight gain, the longest rally in six months. Brazilian assets advanced after a Congressional vote backing President Dilma Rousseff’s spending restrictions fueled optimism the government will be able to trim its budget deficit.

South Africa’s rand rose 1.1 percent after the central bank raised its benchmark rate by 25 basis points to 6.25 percent. Of the 26 economists surveyed by Bloomberg, 16 predicted the rate would stay unchanged, while the rest expected a quarter-point increase.

Looming Fed

The indication that “the Fed will finally be starting the hiking cycle, would mean that the uncertainty regarding whether the hike is happening or not is off the table,” said Mika Kannisto, a money manager at FIM Asset Management Ltd. in Helsinki, which oversees 1.6 billion euros ($1.7 billion).

All 10 industry groups in the developing-nations index advanced with technology and raw-material stocks leading gains. Anglo American Platinum Ltd. added 12 percent, while Gold Fields Ltd. surged 17 percent in Johannesburg, sending the South African benchmark up 0.9 percent.  

Improvements to Gold Fields’ South Deep mine lowered costs, helping the South African mining company with operations from Peru to Australia, climb the most since 2008.

The dollar-denominated RTS Index of Russian stocks rose 0.8 percent. Dubai’s DFM General Index advanced 2.9 percent, sending the gauge to its first weekly gain in six weeks. Egypt’s EGX 30 Index rallied 2.4 percent, the most since Aug. 31.

Indian shares added 1.4 percent as Infosys Ltd. climbed 2.7 percent after four days of losses. Taiwan Semiconductor Manufacturing Co. rose 2.6 percent, leading the gauge of technology shares higher.

The Hang Seng China Enterprises Index climbed 1.4 percent. The Shanghai Composite Index also added 1.4 percent, led by a rally in technology companies after the Xinhua News Agency cited the government as saying they will help manufacturers upgrade their technology. 

The premium investors demand to own emerging-market debt over U.S. Treasuries remained at 383 basis points, according to JPMorgan Chase & Co. indexes.

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