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Emerging Assets Post Best Week of `16 as Growth Outlook Improves

Updated on
  • Real rises on speculation Brazilian president to be impeached
  • Indian stocks post biggest weekly advance since December 2011

Emerging-market stocks and currencies rallied, posting their biggest weekly gains this year, as a surge in U.S. hiring eased concern that global economic growth is faltering. The real jumped on bets that support is growing for the impeachment of Brazil’s president.

Brazil’s stocks led world gains, with Petroleo Brasileiro SA adding 9.9 percent, after the arrest of a former president fueled speculation that a move to remove President Dilma Rousseff will gain momentum. The currencies of Colombia and Chile gained at least 1 percent. Indian stocks capped the largest weekly increase since December 2011 as Finance Minister Arun Jaitley pledged to keep next year’s budget deficit within 3.5 percent of gross domestic product. Russian bonds rallied to the highest since 2014.

Brent crude’s rebound from a 12-year low in January is helping boost sentiment toward developing countries, many of which rely on raw-material exports. A Bloomberg gauge of commodity prices rose to a two-month high on Friday. U.S. employers added 242,000 workers in February, versus a median forecast of 195,000 in a Bloomberg survey. Chinese leaders are expected to use this weekend’s National People’s Congress to temper depreciation bets for the yuan.

The jobs report “strengthens people’s convictions that the global economy can still rely on the U.S. consumer,” said Koon Chow, a strategist at Union Bancaire Privee Ubp SA in London. “That, in turn, provides some good will for key emerging-market drivers such as commodity prices.”

Currency Advance

A gauge of 20 developing-nation currencies climbed 0.8 percent, extending a weekly advance to 3 percent, the most since the period ended Oct. 9. The MSCI Emerging Markets Index gained 1.4 percent to 790.97, pushing this week’s advance to 6.9 percent. A gauge of developing-nation bonds fell from a 11-month high.

Brazil’s real jumped 6.6 percent this week, the most on a closing basis since 2008. Former President Luiz Inacio Lula da Silva is the highest-profile figure targeted so far in a corruption probe that has rocked Latin America’s largest country and is drawing closer to its center of power. The currency gained the most among major world peers in the five days through Friday.

The rupiah strengthened 0.8 percent to bring its five-day increase to 2 percent, and South Africa’s rand and the Turkish lira each gained more than 3 percent on the week.

Stock Valuations

The onshore yuan strengthened 0.5 percent this week in Shanghai. Chinese leaders will probably refrain from announcing any detailed changes to the country’s yuan policy this year at the congress to avoid spurring further volatility, according to Oversea-Chinese Banking Corp.

This week’s rally raised the average valuation of companies on the MSCI Emerging Markets Index to 11.6 times projected 12-month earnings, the highest since July. That compares with a multiple of 15.7 for developed-nation equities, which have retreated 3.3 percent in 2016.

Energy shares have steered the gains in developing nations, rising 11 percent since the end of last week as Brent crude rallied 10 percent to $38.72 a barrel. The Bloomberg Commodity Index increased 3.9 percent.

Brazil Rally

Brazilian stocks entered entered a bull market on Thursday as a news report that a senator alleged wrongdoing by the ruling party also added to optimism that Rousseff’s ouster is gaining momentum. The Ibovespa jumped 4 percent Friday as Petrobras rallied to the highest level since Dec. 16. The benchmark stock gauge gained 18 percent this week.

India’s S&P BSE Sensex Index advanced 6.4 percent this week, while the Hang Seng China Enterprises measure in Hong Kong climbed 6.5 percent. Foreign funds have pumped more than $2.6 billion into Korean, Taiwanese, Indian and Thai equities this week, according to data compiled by Bloomberg.

A JPMorgan Chase & Co. emerging-market bond index climbed 1 percent this week to 725.04 as of Thursday, the highest level since April 29.

Russian government bonds rallied, pushing yields on five-year notes to the lowest level since September 2014, as slowing inflation and the strengthening ruble bolstered expectations the central bank will cut borrowing costs this month.