Emerging Currencies Post Record Monthly Advance as Stocks Rally

  • Equities rally most since May 2009, led by commodity stocks
  • Brent crude rebound spurs March rallies in ruble, ringgit

Emerging-market currencies posted the strongest monthly rally on record as commodities rebounded and the dollar weakened on increased bets that the Federal Reserve will move slowly in raising U.S. interest rates.

An Bloomberg index tracking 20 exchange rates rose 6.3 percent in March, beating the previous record of 5.5 percent in February 1998. The MSCI Emerging Markets index added 0.3 percent on Thursday, pushing the equity benchmark’s monthly advance to 13 percent, the most since May 2009. A U.S. currency gauge posted its steepest monthly decline since 2010.

Fed Chair Janet Yellen this week calmed investors who had been unnerved by a chorus of U.S. central bankers signaling a quicker pace of interest-rate increases, saying policy makers must proceed cautiously as the global economy presents heightened risks. Her speech helped riskier assets resume a rally that had been stalled by the dollar’s six-day advance through March 25 against major peers.

“The stars are aligned for EM currencies right now,” said Per Hammarlund, the chief emerging-market strategist at SEB SA in Stockholm. “They were long overdue for a correction, as valuations in many emerging markets had become very attractive. In addition, concerns over China have eased. The Fed has turned more dovish over the past two months.”

Currencies

The Russian ruble and Brazil’s real posted the biggest gains in March, each increasing 12 percent. All major emerging-market currencies appreciated against the dollar during the month.

The ruble added 1.8 percent Thursday as Brent crude rallied toward $40 a barrel in London. The real gained 0.4 percent, while South Africa’s rand strengthened 1.2 percent.

The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong rose 0.3 percent, paring the month’s gain to 14 percent, the best since April last year. Dalian Wanda Commercial Properties Co. surged the most on record after billionaire Wang Jianlin was said to consider privatizing the company. The Shanghai Composite Index completed its steepest monthly rally in a year, gaining 12 percent.

China Outlook

After the close of trading in Shanghai, Standard & Poor’s cut the outlook for China to negative from stable, saying the nation’s economic rebalancing is likely to proceed more slowly than the ratings firm had expected. The country’s AA- long-term credit rating now has a negative outlook, S&P said in a statement. Moody’s made a similar revision earlier in March, highlighting surging debt and questioning the government’s ability to enact reforms.

Futures contracts on the FTSE China A50 Index expiring in April rose 0.4 percent after reversing a decline following the S&P announcement. The biggest U.S.-listed exchange-traded fund investing in mainland Chinese stocks slipped 1.2 percent.

“They are just reiterating the potential risks that we already know, so there’s nothing new,” said Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking Corp. “It seems like S&P is playing catch up and I doubt we will see any significant impact on markets.”

All 10 industry groups in the MSCI developing-nation stock gauge advanced in March, led by energy and material stocks. The gauge is valued at 11.3 times its 12-month estimated earnings, compared with a multiple of 15.9 for the MSCI World Index, which increased 6.5 percent for the month.

Relative Rotation Graph shows energy and raw-material stocks are outperforming the MSCI gauge by the most.

“Foreign inflows are returning to emerging markets and corporate earnings will be something to watch out for in the next few quarters,” said Danny Wong Teck Meng chief executive officer of Kuala Lumpur-based Areca Capital Sdn., which manages about $224 million. “The main uncertainty would still be statements from the Federal Reserve, as they can shift targets and stance at anytime depending on the data.”

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