Emerging-Market Stocks Gain on China Stimulus Bets; Lira Drops

  • All industry groups jump as benchmark gauge rises second day
  • Turkey's currency slumps as policy makers hold interest rates

Emerging-market stocks climbed for a second day as China signaled it will take more steps to support growth in the world’s second-biggest economy and shares of energy companies recovered. Turkey’s lira dropped after the central bank unexpectedly kept interest rates on hold.

The MSCI Emerging Markets Index rose for a second day as all 10 industry groups advanced. The Shanghai Composite Index increased to a four-month high and the offshore yuan appreciated for a third day. Indonesia’s rupiah headed for its longest rally since October after the government announced its eighth policy package. The South Korean won jumped to a two-week high against the dollar. The lira weakened 0.5 percent.

The optimism on Tuesday was buoyed by signals from China’s leadership that it will take more steps to support economic growth from a 25-year low, including by widening the fiscal deficit and stimulating the housing market. Statements released at the end of the government’s Central Economic Work Conference also highlighted the desire for more “flexible” monetary policy.

“The headlines from the economic meetings in China which indicate more fiscal stimulus and ‘flexible’ monetary policy are supporting emerging-market stocks,” said Michael Wang, a strategist at hedge fund Amiya Capital in London, who has a hold recommendation on developing-nation equities, with a negative outlook.

Fed Outlook

The MSCI Emerging Markets Index added 0.4 percent to 794.61, trading below its 50-day moving average for almost a month. The gauge has fallen 17 percent this year, set for the worst annual performance since 2011, and is valued at 11.1 times the projected 12-month earnings of its members. The MSCI World Index’s multiple is 15.6 after it dropped 3.5 percent in 2015.

A measure tracking 20 emerging-market currencies advanced for a third day, the longest stretch of increases in a month, as bets that the Federal Reserve will gradually raise interest rates supported risk demand.

“Chinese stimulus is positive for the economy and many investors are gauging the general impact of any new measures as well as the longer-term impact of the Fed rate increase,” Attila Vajda, managing director of Project Asia Research & Consulting Pte., a Singapore-based advisory firm, said from Ho Chi Minh City. “The holiday season is impacting liquidity.”

Stocks

All 10 industry groups in the MSCI measure rose. Sasol Ltd., the world’s biggest producer of liquid fuels from coal, increased 2.6 percent in Johannesburg. Axiata Group Bhd. climbed 3.7 percent in Kuala Lumpur after agreeing to buy a 80 percent stake in a Nepalese phone carrier for $1.4 billion.

The Tadawul All Share Index added 1.7 percent, while the BGCC 200 Index of stocks in the oil-exporting Gulf Cooperation Council climbed 1.2 percent. The Micex Index rose 0.4 percent in Moscow.

The Borsa Istanbul 100 Index fell 0.3 percent after Turkey’s central bank delayed a widely anticipated shift to a simplified monetary policy as it left interest rates unchanged. Investors have criticized the complexity of Turkey’s interest rates corridor, introduced five years ago to give the bank greater flexibility amid the global recession.

The Shanghai Composite rose 0.3 percent to the highest close since Aug. 20.

Currencies

The Colombian peso gained 0.4 percent versus the dollar. The rupiah strengthened 0.8 percent. Under a policy package announced on Monday, Indonesia’s private-sector companies will be allowed to build oil refineries as long as they sell the end product to state-owned PT Pertamina. The country will also scrap import taxes on aviation spare parts to support that industry.

The offshore yuan climbed 0.4 percent, according to data compiled by Bloomberg. South Korea’s won rose 0.4 percent, supported by China stimulus prospects, according to Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul.

Turkey’s lira slumped after the central bank kept the one-week repo rate at 7.5 percent, defying the median projection in a Bloomberg survey for an increase of 50 basis points.

Petroleo Brasileiro SA jumped 2.8 percent in Sao Paulo, leading a 0.6 percent gain in the Ibovespa. Brazil’s real strengthened 0.6 percent.

The rate on Taiwan’s 2025 bonds dropped two basis points to 1.03 percent, after earlier declining to 1.01 percent, an intraday record low for benchmark 10-year notes, Taipei Exchange prices show. Disappointing economic data fueled speculation the central bank will ease monetary policy again after delivering two interest-rate cuts this year. 

The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed three basis points to 420, according to data compiled by Bloomberg.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE