Emerging Stocks Rise Fourth Day on Fed Outlook as Ruble Rebounds

  • Shanghai Composite Index rallies as margin debt curbs eased
  • ETF inflows increase to the highest level since April 2014

Investing in Emerging Markets' Near Death Experiences

Emerging-market stocks advanced for a fourth day as investors bet that the Federal Reserve’s dovish stance on interest rates will weaken the dollar and support demand for higher-yielding assets. Russia’s ruble rebounded with oil prices.

Indian equities extended a three-week rally and bonds gained for an eighth day as investors bet the central bank will cut borrowing costs. Brazilian shares rose to the highest level since July as higher commodity prices helped extend gains driven by prospects for a change of government. China’s benchmark gauge rose to a two-month high as policy makers loosened controls on margin lending. The ruble gained 0.8 percent as Brent crude traded above $41 a barrel. Investors added $2.72 billion to U.S. ETFs that buy emerging-market stocks and bonds last week, according to data compiled by Bloomberg.

Developing-nation stocks entered a bull market last week and inflows into exchange-traded funds that buy emerging-market assets increased to the most since April 2014 as the odds of an aggressive U.S. rate policy receded. With European policy makers taking borrowing costs deeper into negative territory, investors are betting central banks will remain supportive of growth. The rally trimmed a 35 percent retreat from April through January that was driven by China’s economic slowdown and oil prices falling below $30 a barrel.

Stock Valuations

“It’s a continuation of the dovish Fed trade,” said Michael Wang, a strategist at hedge fund Amiya Capital LLP in London. “The dollar could continue to trade weaker against emerging currencies until U.S. data turn much stronger. The Fed could have a higher tolerance for inflation before they turn more hawkish.”

The MSCI Emerging Markets Index gained 0.3 percent to 829.1, the highest since Nov. 26. Eight of 10 industry groups advanced, led by health-care stocks. The benchmark trades at 11.6 times the projected earnings of its members, a 27 percent discount to advanced-nation shares. A gauge of 20 developing-nation currencies was little changed.

The S&P BSE Sensex Index climbed 1.3 percent. On Friday, the Finance Ministry pared interest rates on public provident fund and senior-citizen deposits to align them with market rates, stoking speculation of a interest-rate cut by the central bank at its April 5 policy meet. Indian lenders including HDFC Bank Ltd. led the gains in Mumbai.

Brazil, China

The Ibovespa gained 0.7 percent in Sao Paulo. The gauge has rallied 20 percent in March, helped by bets that an impeachment of President Dilma Rousseff would lead to a new government better equipped to help pull the country out of its deepest recession in more than a century.

The Shanghai Composite Index climbed 2.2 percent, led by brokerages and technology companies. The gauge rose above 3,000 for the first time in two months after policy makers loosened controls on margin lending. China Securities Finance Corp. said it will restart offering loans to securities firms for periods ranging from 7 days to 182 days. The state-backed agency, which provides funding to brokerages for margin trading, will cut interest rates on the debt to as low as 3 percent, it said in a Friday statement.

South Africa’s markets were closed for a national holiday.

The ruble rebounded as Brent crude climbed almost 1 percent. The South African rand reversed earlier losses to gain 0.3 percent versus the dollar, the third-best performer in emerging currencies tracked by Bloomberg. Brazil’s real advanced 0.2 percent as exporters benefited from a rebound in commodity prices. Argentina’s peso rallied 2 percent.

The yuan traded offshore fell 0.3 percent, after China’s central bank weakened the daily reference rate by the most since January as a gain in the dollar drove declines in Asian currencies.

The premium that investors demand to own emerging-market debt over U.S. Treasuries narrowed four basis points to 397, according to JPMorgan Chase & Co. indexes.

Before it's here, it's on the Bloomberg Terminal.