Emerging Stocks Rise as Zhou Comments Calm China Growth Concern

  • Energy shares rise most among 10 industry groups as oil climbs
  • China central-bank governor cheers markets with easing comment

Emerging-market stocks ended a three-day losing streak as China’s assurance that it has room to ease monetary policy allayed concern that the nation’s economic slowdown is worsening, adding to a bullish outlook developing among some of the world’s biggest money managers.

Sasol Ltd and Petroleo Brasileiro SA rose as a measure of emerging-market energy stocks rallied the most among 10 industry groups. Russian stocks rose for a second day. The rand fell the most since 2011 amid concern a dispute between South Africa’s finance minister and his tax chief is deepening a power struggle over control of the National Treasury. A gauge of 20 developing-nation exchange rates fell for the third time this week.

Money managers from BlackRock Inc. to Franklin Templeton have helped boost sentiment for emerging markets with comments that valuations are too cheap to pass up. People’s Bank of China Governor Zhou Xiaochuan said Friday the nation “still has some monetary policy space and multiple policy instruments to address possible downside risks" in the world’s second-largest economy, just as counterparts in Japan and Europe adopt negative interest rates to stimulate growth.

“The mood has definitely improved slightly,” said Tony Hann, who helps oversee about $270 million as head of equities at Blackfriars Asset Management in London. “I would hesitate to say that emerging markets as a whole are cheap, but there is some value appearing in specific stocks.”

Relative Valuation

The MSCI Emerging Markets Index gained 0.6 percent to 740.02, reducing its weekly decline to 0.1 percent. The benchmark gauge has fallen 6.8 percent this year and trades at 10.9 times the projected 12-month earnings of its member stocks. That compares with a multiple of 15.1 for developed-nation equities, which have slumped 6.5 percent in 2016.

The developing-nation currency gauge fell 0.8 percent, pushing its five-day drop to 0.5 percent. The premium investors demand to own emerging-country debt over U.S. Treasuries narrowed seven basis points to 460.

All 10 industry groups in the MSCI Index gained on Friday, with a measure of energy stocks climbing 1.6 percent. Brent crude ended the week 6.3 percent higher at $35.10 a barrel.

The Hang Seng China Enterprises Index of mainland shares in Hong Kong rose 2.1 percent, its biggest gain in a week. The Shanghai Composite Index increased 1 percent.

South African stocks jumped 2.2 percent, with Sasol adding 4.4 percent. Russia’s Micex index advanced 0.7 percent. Lukoil PJSC rose 1.4 percent in Moscow. Petrobras gained 0.4 percent in Sao Paulo, while the Ibovespa benchmark slipped 0.7 percent.

Rand, Yuan

The rand weakened 3.5 percent against the dollar. Warrick Butler, head of emerging-market spot trading at Standard Bank Group Ltd., said investor sentiment “has evaporated” on news that the power struggle over control of the National Treasury is escalating.

The onshore yuan retreated less than 0.1 percent on Friday, extending this week’s decline to 0.2 percent. The People’s Bank of China reiterated that there’s no basis for persistent yuan depreciation and said recent moves to reference the exchange rate against a basket of currencies have “now taken shape.”

Currency Volatility

JPMorgan Chase & Co.’s Global Volatility Index of currencies fell 2.7 percent in the five days through Friday, after last week’s 2.9 percent decline. The market will be paying attention to what G-20 officials say about currencies and this year’s 2.3 percent slide in oil at a summit in Shanghai that begins Friday, according to Chu Yen-min, president of KGI Securities Investment Advisory in Taipei.

Russian government bonds rose to the highest level since November as wagers on borrowing costs indicate the market is expecting the central bank to cut in the next six months. The yield on five-year notes fell seven basis points to 9.8 percent.

South Korea’s 10-year government bonds rose this week as global funds returned to the nation’s debt market amid mounting speculation the central bank will cut interest rates. The notes climbed for a fifth week, a rally that pushed the yield to a record low earlier this month.

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