Emerging Stocks Rebound on China Stimulus Efforts as Yuan Jumps

  • MSCI gauge snaps two-day loss as all 10 industry groups gain
  • Yuan surges most in a decade as central bank voices support

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Emerging-market stocks rebounded after their worst weekly drop in a month and currencies rallied amid speculation authorities from Europe to Japan will increase stimulus to stabilize global economic growth. China’s yuan jumped by the most since a dollar peg was scrapped in 2005 and the ruble rallied.

An MSCI Emerging Markets Index gauge of energy companies advanced the most in more than a week as oil climbed. Saudi banking stocks ended a four-day drop after the kingdom’s central bank was said to be easing rules on lending to stimulate growth. The yuan surged 1.2 percent after China’s central bank chief voiced support for the currency. Brazil’s real gained as prices of raw materials from crude to copper advanced.

"The jump in the yuan and comments from the People’s Bank of China have provided some confidence to the market," said William Jackson, a London-based emerging markets analyst at Capital Economics Ltd. "If sentiment toward China turns, there might be scope for a recovery in emerging-market equities.”

Stocks also rallied as investors judged losses that pushed global equities into a bear market last week were excessive. Sentiment toward riskier assets had soured on skepticism whether central banks can arrest the slide in the world economy, while Federal Reserve Chair Janet Yellen indicated the U.S. won’t rush to raise interest rates again. European Central Bank President Mario Draghi, addressing lawmakers on Monday, said policy makers will “not hesitate to act” if market turmoil threatens price stability.

The MSCI Emerging Markets Index increased 2.2 percent to 726.86 Monday, after dropping 3.8 percent last week. Brazil’s Ibovespa index rose for a second day as improving sentiment from China bolstered the outlook for the country’s raw-materials producers. A gauge tracking 20 emerging-market currencies advanced for a second day.

Stocks

All 10 industry groups in the MSCI index rose on Monday as energy shares climbed 3.4 percent. Cnooc Ltd. jumped 6.4 percent and Lukoil PJSC climbed for a third day in Moscow after Reuters reported the company expressed interest in buying a stake in Bashneft PAO, which increased 2.2 percent.

The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong jumped 4.8 percent, the biggest increase since Sept. 9. China’s balance of payments position is good, capital outflows are normal and the exchange rate is basically stable against a basket of currencies, People’s Bank of China Governor Zhou Xiaochuan said in an interview published in Caixin magazine over the weekend.

Indian shares jumped 2.5 percent rebounding from the worst weekly loss since 2009, while the FTSE/JSE Africa All Share Index in Johannesburg rose 2.6 percent. Brazil’s Ibovespa rose 0.7 percent, led by steel company Usinas Siderurgicas de Minas Gerais SA.

Currencies

A gauge of 20 currencies rose 0.3 percent. The yuan caught up with a decline in the greenback during the Chinese New Year holiday after the central bank boosted the daily fixing against the dollar by the most in three months. The ruble got a boost as exporters bought the local currency to prepare for almost $15 billion of tax payments due this month, according to ING Groep NV estimates.

“In the short term, these gains could be maintained," said Mitul Kotecha, head of Asian foreign-exchange and interest-rate strategy at Barclays Plc in Singapore. "But given the potential for risk aversion to move higher, and considering the volatility that’s still in place in oil prices and capital outflows, it’s difficult to see this sort of rally being sustained in the medium term.”

Turkey’s lira weakened 0.6 percent amid an eruption of violence on Turkey’s border with Syria that triggered concern security risks were escalating.

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