Emerging-Market Stock Rebound Mitigates Worst Start Since Crisis

  • Ruble, ringgit lead currencies to best week since October
  • Mexico, South Korea to fare better: Charles Schwab's Kleintop

Is It Time to Get Back into Emerging Markets?

Emerging-market stocks advanced for a second week, trimming their worst start to a year since the 2008 financial crisis, as Bank of Japan’s negative interest-rate strategy added to confidence that major central banks remain supportive of growth. Currencies rose the most since October during the five days.

Chinese shares rallied in both Shanghai and Hong Kong after the central bank injected more funds to avert a cash crunch. Turkish equities rose on all days of the week for the first time since May 15 as investors were attracted by the lowest valuation in seven years. Brazil’s bonds climbed and the benchmark stock index advanced for a third day, trimming the Ibovespa’s decline this month to 6.8 percent. Russia’s ruble had the first weekly increase this year as policy makers left the benchmark rate unchanged.

Emerging-market stocks slumped as much as 13 percent earlier this month, with at least 26 nations in a bear market, as weakening growth in China spurred a contagion of commodity-price declines, currency devaluations and credit-rating downgrades. Before the rebound, a gauge of 20 exchange rates extended a record low as a selloff in crude oil deepened. The BOJ’s surprise move in adopting a negative interest-rate strategy, coupled with unchanged interest rates from the Federal Reserve, boosted risk appetite, according to Jeffrey Kleintop, chief global investment strategist at Charles Schwab & Co, who helps oversee $2.5 trillion.

Capped Gains

“Bringing that European concept of negative interest rate to Asia, which certainly weakened the Yen, helped lift Japanese stocks and the emerging markets followed that rally,” Kleintop said via the phone from Boston. He said the Mexican and South Korean markets may perform better than countries such as Brazil and Russia, which are “probably seeing their gains capped.”

Japan introduced a rate of minus 0.1 percent on certain excess cash holdings of banks to spur them to lend more. In doing so, it followed a strategy adopted by the European Central Bank which is trying to stoke consumer demand in the euro zone. ECB policy makers will meet March 10 to decide whether to expand a $1.6 trillion stimulus plan to aid economic recovery.

Stocks

The MSCI Emerging Markets Index advanced for a third day, the longest rally since Dec. 25, gaining 2.8 percent to 742.37. That helped pare this month’s losses to 6.5 percent. All 10 industry groups in the gauge climbed, led by energy and industrial companies. The equity benchmark trades at 11 times the 12-month projected earnings of its members, about 27 percent cheaper than the valuation for advanced-nation shares.

The Hang Seng China Enterprises Index of mainland stocks rose 2.7 percent. The Shanghai Composite Index posted its first advance in four days, trimming January’s decline to 23 percent. To ease a cash crunch in the banking system in the build-up to the Lunar New Year, the People’s Bank of China said it will conduct open-market operations every working day around the holiday, compared with the current twice-weekly practice.

Turkey’s Borsa Istanbul 100 Index climbed 1.5 percent. The price-earnings multiple for the national benchmark fell as low as 7.65 this month. India’s S&P BSE Sensex gained 1.6 percent, ending three weeks of decline.

Currencies

The emerging-market currencies measure rose 0.5 percent on Friday, extending a 1.3 percent gain for the week and trimming January’s decline to 1.5 percent. The ringgit strengthened 1.3 percent after Prime Minister Najib Razak cheered investors with measures on Thursday to shore up the economy from falling commodities.

The ruble rose 1.2 percent against the dollar as the Bank of Russia held its main rate at 11 percent and Brent crude rose 2.5 percent. The real rose 1.8 percent to 3.9992 per dollar, trimming its monthly slide to 1 percent.

Brazil’s Ibovespa stock index rose the most among global benchmarks as state-controlled oil producer Petroleo Brasileiro SA followed gains in crude.

Azerbaijan’s bonds fell after the nation’s credit rating was cut to junk by Standard & Poor’s as the former Soviet Union’s third-biggest oil exporter grapples with a collapse in crude prices.

The premium investors demand to own emerging-market debt over U.S. Treasuries widened five basis points to 464, according to JPMorgan Chase & Co. indexes.

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