Emerging Stocks End Two-Day Drop as Energy Shares Climb With Oil

  • Polish equties, currency rally as Moody’s affirms rating
  • Weaker than expected Chinese data pulls Asian currencies lower

Oil Rises to Six-Month High: What's Next?

Emerging-market stocks rose for the first time in three days as energy companies climbed with oil prices on mounting speculation that a persistent global supply glut is finally abating. Polish assets gained after the country escaped a downgrade from Moody’s Investors Service.

Sasol Ltd. jumped in South Africa, while Russia’s Novatek OAO rallied and the ruble appreciated as Goldman Sachs Group said the oil market is shifting to a deficit. The zloty rose and yields on 10-year Polish bonds fell after Moody’s kept the nation’s long-term credit rating at A2. South Korea’s won led declines in Asian currencies after figures released Saturday showed Chinese industrial production, retail sales and fixed-asset investment all trailed estimates.

“The firmer oil price is helping emerging-market equities today despite the weaker China data over the weekend,” said Michael Wang, a strategist at hedge fund Amiya Capital LLP in London, who favors Indian, Mexican and South Korean stocks. Oil is pulling up other commodity producers as well, he said.

Brent crude sold for about $49 a barrel Monday, after rebounding more than 75 percent from a 12-year low in January amid signs a global glut has eased. Goldman Sachs raised its price estimates and projected a return to an output surplus early next year. China’s disappointing data came as indicators from around the world show the pace of global expansion remains sluggish and stoked concern that the slowdown in Asia’s largest economy might not be stabilizing.

ETF Outflows

Investors withdrew more than $1.6 billion from U.S. exchange-traded funds that buy emerging-market stocks and bonds in a second straight week of outflows. Losses from emerging market ETFs that invest across developing nations as well as those that target specific countries widened to $1.64 billion last week from $1.31 billion in the previous period, according to data compiled by Bloomberg.

The MSCI Emerging Markets Index rose 0.2 percent to 797.43. Energy shares jumped 0.7 percent as six of 10 industry groups advanced. The benchmark gauge trades at 11.3 times the projected 12-month earnings of its members, compared with a multiple of 15.8 for developed-nation stocks.

Poland, Brazil

Poland’s WIG20 Index rose 2.1 percent, the most in a month, after Moody’s left the country’s rating five steps above junk and the same level it has had since 2002. The Micex Index increased 0.4 percent as data showed Russia’s economy contracted less than forecast in the first quarter. South Africa’s equity benchmark increased 1.6 percent.

The MSCI Emerging Markets Currency Index fell 0.2 percent, taking the index’s decline this month to 2 percent. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 peers, was little changed and has risen 2.3 percent in May.

“People are waiting to see the Federal Reserve minutes this week to gain any insight on whether the stronger dollar move is sustainable,” Wang said. “If it is, it would be negative for emerging markets through the FX channel.”

Fed Outlook

The Fed will probably raise interest rates twice this year and that’s being underpriced, said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. All Asian currencies will end the year weaker against the dollar from current levels, she said.

Brazil’s real strengthened 0.7 percent as rallying commodity prices boosted the outlook for the nation’s exporters.

South Africa’s rand fell the most among developing-nation currencies tracked by Bloomberg, weakening 1.7 percent against the dollar amid speculation that police are set to arrest Finance Minister Pravin Gordhan over alleged irregularities at the nation’s revenue service.

The won declined 0.7 percent. Taiwan’s dollar slumped 0.3 percent.

The People’s Bank of China cut the yuan’s fixing by 0.15 percent following a 0.44 percent reduction on Friday. The yuan strengthened 0.1 percent against the dollar in offshore trading.

In sovereign bond markets, the premium investors demand to hold emerging market bonds over Treasuries narrowed four basis points to 393.

Polish debt rallied, sending yields on five-year bonds down six basis points to 2.11 percent. Ten-year rates dropped to 2.922 percent. South African bonds fell amid the news about the finance minister, pushing the yield on 10-year notes up 14 basis points to 9.34 percent, the highest since March 29.

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