Emerging Stocks Rise on China Stimulus; Won Weakens With Ruble

  • Benchmark equity gauge rises to the highest level in a week
  • Currencies halt two-day advance as crude prices slip

Emerging-market stocks gained for a second day after Chinese banks issued a record amount of loans in January. Russia’s ruble fell after talks between Russia and Saudi Arabia ended without an agreement to cut oil output.

The Shanghai Composite Index jumped the most in three months, led by a 2.4 percent advance in PetroChina Co. Ltd. Raw-material producers and banks led the Ibovespa higher in Brazil, which lists China as its biggest trading partner. The ruble weakened for the first time in three days as crude, Russia’s biggest export, retreated. The won dipped and government bonds rose on speculation the Bank of Korea will cut interest rates after one of its board members called for a reduction.

Chinese policy makers are expected to release a package of measures to ensure economic growth is in a reasonable range this year, the Economic Information Daily reported, after the nation’s economy expanded at the slowest pace in a quarter century in 2015. In Doha, Saudi Oil Minister Ali Al-Naimi said freezing output at January levels will be “adequate” and the nation still wants to meet the demand of its customers.

Crude Slump

“If the oil output agreement is adhered to, then it should be a positive but it will be a while before supply and demand are balanced,” said Tony Hann, who helps oversee about $270 million as head of equities at Blackfriars Asset Management in London. “Sentiment had swung to an extreme bearish level so it is natural we have some short-term rally in emerging markets. I would be cautious about chasing this rally.”

The slump in crude over the past year has weighed on growth in oil-rich developing countries and heightened sensitivity to any sign of willingness by Saudi Arabia, the defacto OPEC leader, to discuss coordinated production cuts. Brent crude slipped 3.6 percent to $32.18 a barrel after erasing a 6.5 percent gain.

The MSCI Emerging Markets Index added 0.6 percent to 731.40. The Shanghai Composite Index rallied 3.3 percent and the Hang Seng China Enterprises Index of mainland shares listed in Hong Kong increased 2.1 percent. The Hong Kong gauge has tumbled more than 40 percent from its May high, sending valuations to record lows as concern deepened over China’s economic slowdown.

‘Unduly Punished’

Declines by Chinese stocks in Hong Kong have created bargains, according to Mark Mobius, the Franklin Resources Inc. money manager who’s been investing in emerging markets for more than four decades.

“The market already presents itself with opportunities to pick stocks at a bargain -– companies which have been unduly punished by panicked selloffs and volatility,” Mobius said.

Saudi Arabia’s Tadawul All Share Index added 0.9 percent, trimming an earlier advance of 2.8 percent, while Dubai stocks climbed 2 percent. Lukoil PJSC, Russia’s largest private oil company, added 0.9 percent and Sasol Ltd. of South Africa dipped 0.3 percent after rising as much as 7.1 percent.

Currencies

A Bloomberg gauge of emerging-market currencies retreated 0.6 percent, ending two days of gains. South Korea’s won dropped 0.7 percent as the central bank’s decision to keep the benchmark interest rate at a record low 1.5 percent failed to quell speculation about a rate cut.

China’s yuan traded onshore and offshore slipped 0.3 percent after the central bank set the daily fixing against the dollar at 6.5130, compared with 6.5118 on Monday. The currency surged 1.2 percent on Monday as it caught up with declines in the greenback last week when Chinese markets were shut for the Lunar New Year holidays.

Russia’s ruble dropped 1.2 percent against the dollar, reversing a rally of as much as 1.4 percent. India’s rupee slipped 0.5 percent. Brazil’s real weakened 1.7 percent.

Brazilian equities jumped for a third day, buoyed by banks including Itau Unibanco Holding SA and Banco Bradesco SA. The Ibovespa benchmark gained 2.1 percent to a six-week high.

The extra yield investors demand to own emerging market debt over U.S. Treasuries fell eight basis points to 485, according to JPMorgan Chase & Co. indexes.

Ukrainian bonds pared losses after President Petro Poroshenko called on Prime Minister Arseniy Yatsenyuk to resign to allow the formation of a technocratic government to end a political crisis and reignite an overhaul of the economy. The yield on notes due 2027 climbed 22 basis points to 10.30 percent after jumping as high as 10.42 percent.

The yield on three-year South Korean bonds declined four basis points to an unprecedented 1.45 percent, Korea Exchange prices showed.

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