Emerging-Market Stocks Rebound as Oil Advance Eases Fed Concern

  • MSCI index rises first time in 10 days as all industries climb
  • Currencies gain as dollar retreats before expected Fed liftoff

Why a Fed Rate Hike May Lead to a Weaker Dollar

Emerging-market stocks rebounded from a six-year low and currencies gained as oil ended a seven-day slump and speculation mounted that the dollar’s gains this year leave it vulnerable to a short-term selloff if the Federal Reserve raises interest rates.

The MSCI Emerging Markets Index rose for the first time in 10 days, with all industry groups advancing. Gazprom PJSC and Turkiye Petrol Rafineri leri AS rallied with crude prices. A gauge of developing-nation currencies gained for a second day as the Federal Open Market Committee began a two-day meeting at which policy makers are projected to raise U.S. interest rates. The Ibovespa ended a three-day decline as Brazilian commodity producers including Vale SA advanced.

“The weaker dollar and the relative stability of the oil price are helping” emerging-market sentiment, said Michael Wang, a strategist at hedge fund Amiya Capital in London, who prefers Indian, South Korean and Indonesian shares. “If Fed guidance is dovish, stocks could continue to rally.”

While analysts from Bank of America Corp. to Goldman Sachs Group Inc. have said that markets in developing economies are poised for a turnaround following three years of losses, political turmoil in countries including South Africa and Brazil and tensions between Turkey and Russia highlight present risks.

Political Turmoil

South Africa’s rand whipsawed after President Jacob Zuma named a second finance minister in four days on Sunday and Polish stocks slumped to a six-year low this week amid a policy shakeup by the new government. Brazil was on the brink of impeaching the president, while Turkey’s standoff with Russia over a downed warplane triggered a selloff in lira assets. The turbulence is pushing stocks toward a 19 percent decline in 2015 and currencies to the biggest plunge in 18 years.

The MSCI Emerging Markets Index climbed 1.1 percent to 779.41 on Friday, halting a nine-day slide that pushed valuations to the lowest this month. The gauge trades at 10.8 times projected 12-month earnings, a 30 percent discount to the MSCI World Index of advanced-nation equities.

Gazprom, Russia’s largest natural-gas exporter, gained the most since Dec. 3. That helped the benchmark Micex Index add 2 percent, its first advance in four days, as Brent crude rose 1.4 percent to $38.45 a barrel. Tupras, Turkey’s sole crude refiner, jumped 7.1 percent and the country’s benchmark index climbed 4.1 percent, the most in six weeks.

Taiwan, Brazil

In Taiwan, acquisitions boosted some semiconductor-related stocks by the 10 percent daily limit. Inotera Memories Inc. jumped the most since 2006 after Micron Technology Inc. agreed to buy the rest of the Taiwanese chipmaker for $3.2 billion excluding cash and debt. Siliconware Precision Industries Co. surged the most since Aug. 24 after Advanced Semiconductor Engineering Inc., the world’s biggest chip testing and packaging provider, made an unsolicited $3.9 billion bid.

The Ibovespa advanced 0.3 percent, its first increase in four days. Vale SA, the worlds biggest iron-ore producer, jumped 4.2 percent.

Currencies

A gauge of 20 developing-nation exchange rates, which fell to a record last week, rose 0.4 percent. The South African rand strengthened 1.3 percent against the dollar after the new finance minister, Pravin Gordhan, said he’ll shore up public finances to regain investors’ trust.

The rand weakened 9.6 percent last week. Firing one long-term incumbent and then replacing his successor on the insistence of business leaders has so dented President Jacob Zuma’s economic credibility that politics will now be a long-term drag on the currency, according to strategists at Rand Merchant Bank, Brown Brothers Harriman & Co. and Rabobank Group.

The premium investors demand to own developing-country debt over U.S. Treasuries narrowed seven basis points to 417, according to JPMorgan Chase & Co. indexes.

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