Emerging Assets Resume Advance as Fed Scales Back Rate Forecast

  • Stocks, currencies reverse drop as fewer increases projected
  • Egypt shares extend world-beating rally on pound devaluation

Emerging-market assets resumed this month’s advance after the Federal Reserve scaled back its forecasts for increases in U.S. interest rates this year, supporting demand for riskier assets.

The MSCI Emerging Markets Index added 0.1 percent to 791.18, after reversing a decline of as much as 0.4 percent. A gauge of 20 developing-nation exchange rates increased 0.7 percent as Russia’s ruble rallied with oil prices.

Stocks and currencies rebounded after Fed policy makers held off from raising interest rates and released quarterly projections that implied two quarter-point increases this year, down from four forecast in December. Low U.S. borrowing costs have helped prop up emerging markets as the relatively weaker dollar makes riskier assets in developing nations more appealing.

“The announcement today alleviates or delays some of the financial stress that’s been threatening the emerging markets in recent months, but ultimately investors are wanting to see stronger growth,” Alan Gayle, a senior strategist at Atlanta-based RidgeWorth Investments, which has about $37 billion in assets, said by phone. “While this is a band aid in the near-term, it’s not a cure.”

Wednesday’s increase pushed the MSCI developing-nation stock benchmark’s gain in March to 6.9 percent. The currencies gauge has gained 3.4 this month. Seven out of 10 industry groups advanced Wednesday. Energy stocks rallied the most as crude prices rose for the first time in three days.

Developing-nation stocks have slipped 0.4 percent this year and trade at an average 11.4 times projected 12-month earnings. That compares with a multiple of 15.7 for the MSCI World Index of developed-nation shares, which has declined 2.5 percent in 2016.

Brazilian stocks rebounded and the real erased a decline of as much as 2.3 percent as the Fed interest rate outlook outweighed concern that the government boost spending after former President Luiz Inacio Lula da Silva was appointed chief of staff. Commodity producers including Petroleo Brasileiro SA and Vale SA led a 1.3 percent advance in the Ibovespa, while the currency strengthened 0.6 percent.

Egyptian stocks extended the world’s best rally this week after the biggest pound devaluation since 2003. The EGX 30 Index climbed 1.3 percent, bringing the advance since a devaluation on Monday to 10 percent. The move diminished one of the biggest risks that kept foreign investors at bay since a 2011 uprising ousted President Hosni Mubarak.

Saudi, Russia

The Tadawul All Share Index in Riyadh added 1.2 percent as Brent crude jumped 4.1 percent to $40.33 a barrel. Stocks in Russia, which depends on energy sales for about half its government budget revenue, rose 0.9 percent, ending a three-day decline. The ruble strengthened 2.7 percent against the dollar.

The Shanghai Composite Index added 0.2 percent after Premier Li Keqiang said the government will support the economy.

The rupiah weakened 0.7 percent. Bank Indonesia is likely to trim its policy rate for a third month on Thursday, according to the median estimate in a Bloomberg survey. South Korea’s won declined 0.5 percent as an official report showed the nation’s jobless rate rose to a six-year high of 4.1 percent in February.

The rand gained 1.7 percent amid speculation South Africa President Jacob Zuma’s power is being undermined. The FTSE/JSE Africa All Shares Index added 0.8 percent, led by a 1.7 percent gain in Naspers Ltd.

The premium that investors demand to own emerging-market debt over U.S. Treasuries widened five basis points to 421, according to JPMorgan Chase & Co. indexes.

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