Emerging-Market Stocks Rally on Fed as Argentina's Peso Tumbles

  • Equities posted biggest three-day gain in more than two months
  • Peso weakens as Argentina abandons most currency controls

Argentina's Macri Fulfils Free-Floating Peso Pledge

Emerging-market stocks posted the biggest three-day gain since October as risk appetite got a boost from the Federal Reserve’s assurance that further interest-rate increases will be gradual. Russia’s ruble closed at a record low against the dollar as oil slid to a seven-year low.

The benchmark equity index’s valuation rose above its 10-year average after the Fed raised rates for the first time in almost a decade. Consumer stocks led gains in Brazil after a surprise drop in unemployment. Egyptian stocks jumped as Commercial International Bank Egypt SAE received a bid for its investment-banking unit. Dubai and Saudi Arabian shares advanced as investors sought assets in economies with currencies pegged to the dollar. Argentina’s peso tumbled 27 percent against the dollar after the country abandoned most currency controls.

While rising U.S. interest rates enhance the appeal of dollar-denominated assets, they also reflect confidence in the growth outlook for the world’s biggest economy. Fed Chair Janet Yellen pledged to nurture the economic recovery with measured rate increases. The run-up to Wednesday’s decision had been punishing for emerging markets, with stocks losing almost $5 trillion in value since June and currencies heading for the worst year since 1997. A slowdown in China and tumbling commodity prices exacerbated the meltdown.

The liftoff “was as expected and the tone was dovish,” Tony Hann, the head of equities at Blackfriars Asset Management in London, said by e-mail. “It could be taken as a sign of confidence on the part of the Fed in the strength of the U.S. economy. It is good for global growth and emerging markets are viewed as a play on growth.”

The MSCI Emerging Markets Index climbed 1 percent to 798.59 in New York, pushing the three-day gain to 3.6 percent. The measure trades at 11.2 times the projected earnings of its members, a 29 percent discount to advanced-nation shares, which have declined 3.2 percent in 2015. The developing-nation gauge is heading for a 16 percent decline this year, the worst since 2011.

The Ibovespa advanced 0.6 percent in Sao Paulo. Homebuilder MRV Engenharia & Participacoes SA led gains among consumer discretionary stocks, rallying 5.9 percent. Brazilian equities advanced as the government said unemployment fell to 7.5 percent in November from 7.9 percent a month earlier. Economists had projected an increase to 8 percent.

Argentina Devaluation

A gauge tracking 20 emerging-market currencies declined 0.4 percent, on track for a retreat of 15 percent this year.

Argentina’s peso, which isn’t part of the index, weakened to 13.4 per dollar, after it began to trade freely. The policy to usher in a devaluation was a key part of the economic overhaul that President Mauricio Macri says is needed to lure investment that can jump-start an economy suffering from anemic growth, inflation estimated at 25 percent and a shortage of dollars.

The ruble weakened 1.1 percent to 71.1830 per dollar, the lowest since at least 1993. Brent crude, the grade traders use to price the nation’s main export blend, sank 0.9 percent to $37.06, the lowest close since December 2008.

China’s yuan declined for a 10th day, the longest streak of depreciation in data going back to 2007. The Shanghai Composite Index climbed 1.8 percent to a two-week high. The Hang Seng China Enterprises Index rose 1.3 percent in Hong Kong.

The EGX 30 Index in Cairo jumped 2.8 percent as CIB rallied after receiving a takeover offer for its investment-banking unit from Orascom Telecom Media and Technology Holding SAE.

The DFM General Index in Dubai advanced 2.9 percent, the most since August. Saudi Arabian stocks jumped 2.6 percent, advancing for a third day as the central bank raised interest rates, a move that mirrored the Fed and showed policy makers’ commitment to the riyal-dollar peg.

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