Emerging-Market Assets Rise on China Growth Outlook, Crude Rally

  • Brazil real gains before votes on presidental impeachment
  • Commodity stocks lead gains in equities as enrgy prices jump

Emerging-market currencies and stocks rose for a third day as signs of a pick-up in industrial demand in China eased concern that the slowdown in the world’s second-largest economy is worsening.

Brazil’s real appreciated to the strongest closing level since August as lawmakers prepared for votes this week on impeachment of the president. The yield on Ukraine’s note due 2019 fell the most since March 4 after the country’s premier resigned. Energy stocks advanced for a fourth day as Brent crude rallied. All 10 industry groups in the MSCI Emerging Markets Index rose.

Developing-nation assets have benefited as dovish Federal Reserve weakened the dollar and relieved pressure on China’s yuan. The first monthly increase in China’s factory gate prices since 2013 added to signs of an improving economy and raised prospects the People’s Bank of China will leave interest rates unchanged for a longer period as a threat of deflation wanes. Oil has gained more than 50 percent since falling to a 12-year low in January amid signs a global glut will ease.

The gains in emerging markets Monday were driven by “the benign CPI data out from China overnight and also the better-than-expected PPI data,” said Michael Wang, a strategist at hedge fund Amiya Capital LLP in London, who favors shares in India, Mexico and Poland. “It’s another sign that growth in China may be stabilizing. This is helping emerging-market energy and material sectors.”

Fund Inflows

Investors have pumped more than $10 billion into funds that invest across developing nations in the last eight weeks, the longest streak of inflows since May. Last week, stock exchange-traded funds increased by $161.9 million and bond funds by $240.8 million, according to data compiled by Bloomberg.

The MSCI Emerging Markets Currency Index rose 0.6 percent on Monday. The measure is up 3.9 percent this year as the Bloomberg Dollar Spot Index, which tracks the currency against 10 peers, fell 4.7 percent.

The real rose 2.6 percent against the dollar. Lawmakers this week could set in motion the impeachment of President Dilma Rousseff, a move some investors see as a chance to bring in a new administration better equipped to pull the country out of a recession. Congress is set to take key votes this week in a complicated impeachment effort. The full house could vote as early as April 17, potentially moving the process to the Senate, which would have the final say on if she should be removed from office.

Yield Spread

Turkey’s lira gained 0.6 percent as a person familiar with the matter said political leaders are planning to choose Central Bank Deputy Governor Murat Cetinkaya as the next governor. Russia’s ruble rose 0.6 percent and Mexico’s peso strengthened 0.7 percent. Oil rose 2.1 percent to $42.83 a barrel in London.

The yield on Ukrainian bonds due in 2019 fell to 9.68 percent. Prime Minister Arseniy Yatsenyuk’s resignation prompted bets that a government crisis may be resolved with the appointment of Parliamentary speaker Volodymyr Hroisman as premier.

The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed four basis points to 412, according to JPMorgan Chase & Co. indexes.

Russia Outlook

The MSCI Emerging Markets Index gained 0.9 percent to 824.01. Energy shares in the gauge increased 1.2 percent. The developing-nation stock benchmark has climbed 3.9 percent this year and trades at 11.7 times estimated 12-month earnings, compared with 15.7 times for the MSCI World Index, which has retreated 1.8 percent this year.

The Shanghai Composite Index increased 1.6 percent and the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong rose 1.2 percent.

Russia’s Micex Index added 1.6 percent to the highest since March 22. Credit Suisse Group AG on Monday recommended selling Mexican equities and increasing exposure to Russian companies. Some non-index Russian assets remain undervalued, according to Anna Vaananen, a fund manager at Credit Suisse Asset Management.

“The economy and the ruble are stabilizing, interest rates will come down 150 to 200 basis points this year and inflation will come down, which in turn will lead to a pick- up in non-index stocks as soon as there are inflows into active funds,’’ Vaananen said in an interview.

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