Emerging-Market Assets Advance With Oil as Investors Await Fed

  • Egyptian stocks rise to eight-month high as protests fade
  • Currencies end three-day decline as real, ruble strenthen

Will FOMC Lay Groundwork for a June Rate Hike?

Emerging markets halted their declines as an advance in oil offset caution before the Federal Reserve’s comments this week on the pace of U.S. interest-rate increases.

Egyptian stocks rallied to an eight-month high after anti-government protests fizzled out. Indian equities jumped to the highest level since Jan. 1 as data showed foreigners are returning to the Mumbai market. The Turkish lira strengthened for a second day as the new central bank governor signaled he would follow a prudent policy. Russia’s ruble and the Brazilian real rose as Brent crude sold for more than $45 a barrel.

“The rebound in equities was partly due to rise in oil price after a selloff yesterday,” said Michael Wang, a strategist at hedge fund Amiya Capital LLP in London. “I don’t see any changes in fundamentals of oil or sentiment among investors ahead of the Fed meeting this week.”

Crude gained 2.8 percent to $45.74 a barrel amid signs the global oversupply is diminishing. Investors will be parsing the language in Fed’s statement Wednesday to gauge whether policy makers think economic conditions warrant interest-rate increases. There’s a 67 percent chance the U.S. central bank will boost its benchmark by year-end, up from 54 percent odds at the end of March, according to data compiled by Bloomberg based on Fed fund futures.

Stocks

The MSCI Emerging Markets Index rose 0.4 percent to 842.63. All 10 industry groups advanced, with information technology shares gaining the most. The developing-nation equity benchmark has gained 6.1 percent this year and trades at 11.8 times projected 12-month earnings. That compares with a multiple of 16.2 for developed-market stocks, which have risen 1.4 percent in 2016.

The EGX 30 Index in Cairo climbed 1.9 percent to the highest level since Aug. 12. Egyptian security personnel swooped down on protesters and arrested at least 10 people to contain demonstrations over the ceding of two Red Sea islands to Saudi Arabia.

The S&P BSE Sensex Index added 1.3 percent in Mumbai as HDFC Bank Ltd. and ITC Ltd. advanced at least 2 percent each. Turkish shares gained 0.8 percent, led by lenders including Turkiye Garanti Bankasi AS.

Russia, Brazil

The Micex Index dropped 0.5 percent in Moscow, falling for a second day, as crude-producer Lukoil PJSC dropped 2 percent. The company may struggle to finance dividend payments out of its own free cash flow, which may be less than $1 billion this year, Sberbank CIB analysts wrote in a research note.

The Ibovespa gained 2.4 percent in Sao Paulo. The Brazilian benchmark has rallied
42 percent from this year’s low in January on speculation that President Dilma Rousseff will be impeached and a new administration will be better able to pull the country out of a recession.

The MSCI Emerging Markets Currency Index added 0.1 percent. Exchange rates have strengthened 4 percent against the dollar in 2016, led oil-producing nations including Russia and Colombia.

The Turkish lira appreciated 0.8 percent against the dollar Tuesday. Central bank Governor Murat Cetinkaya said liquidity policy will remain tight as long as needed. “He seems very prudent which is positive” for the lira, Evren Kirikoglu, a strategist at Akbank TAS, said in an e-mail.

Yield Spread

The real strengthened 0.7 percent, advancing for a second day. The ruble added 0.8 percent. The Russian currency is gaining support from speculation that the central bank will refrain at its sixth meeting in a row from cutting the highest interest rate among major emerging markets in Europe, the Middle East and Africa. The Bank of Russia will keep benchmark borrowing costs at 11 percent on Friday, according to the median of 28 estimates in a Bloomberg survey.

Malaysia’s ringgit depreciated 0.4 percent against the dollar, declining for a fourth day, the longest stretch of losses since November, after state-owned investment company 1Malaysia Development Bhd. said it had defaulted on a bond payment. 1MDB said it was withholding a $50 million payment on $1.75 billion of dollar notes in a dispute with International Petroleum Investment Co., which is the co-guarantor of the bonds maturing in 2022. The deadline was on Monday.

The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed one basis point to 382, according to JPMorgan Chase & Co. indexes.

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