Emerging Stocks Rise Sixth Day on Mounting Stimulus Speculation

  • Developing-market currencies at highest level since July 2015
  • Union Bancaire says inflows to developing assets to continue

JPMorgan's Mowat: We're Positive on Emerging Markets

Emerging-market stocks posted their longest winning streak since April and currencies rose to the strongest against the dollar in almost a year as optimism over prospects for stimulus in major economies boosted demand for riskier assets.

Energy stocks led the MSCI Emerging Markets Index to a sixth consecutive gain as oil prices climbed. Turkey’s equity benchmark increased to the highest in two months. A gauge of mainland Chinese companies traded in Hong Kong capped its steepest four-day advance in three months. Brazilian stocks rallied for a seventh day. South Africa’s rand and Russia’s ruble strengthened the most among currencies. Hungarian government bonds rose as the central bank said it will motivate banks to keep more cash in the economy.

Emerging-market stocks are trading at their most expensive levels in more than a year amid a rally that’s propelled the benchmark index to its highest level in eight months. Investors are plowing money into developing markets amid bets that some of the world’s biggest economies will take measures to stem the fallout from Britain’s vote to leave the European Union. The Bank of England signaled on Thursday that it’s readying stimulus for August, while a key adviser to Japan’s Prime Minister Shinzo Abe said former Federal Reserve Chair Ben S. Bernanke had floated the idea of perpetual bonds to stimulate Japan’s economy.

“Unless central banks were to surprise on the hawkish side, money will continue to flow into global equities and higher-yielding fixed-income markets,” said Koon Chow, a London-based strategist at Union Bancaire Privee, who recommends buying Russian assets and high-yielding currencies. “A number of investment bank analysts are still rather cautious, which suggests that positioning is not yet at dangerous complacent levels.”

Stocks

The MSCI Emerging Markets Index added 1.1 percent to 865.93. The gauge has advanced 9 percent this year and trades at 12.3 times its 12-month projected earnings, the highest level since May 2015.

The Borsa Istanbul 100 Index advanced 1.6 percent, rising for a fourth day. Turkcell Iletisim Hizmetleri AS rose 4.5 percent.

The Ibovespa jumped 1.6 percent in Sao Paulo. Brazilian assets gained after an ally of Acting President Michel Temer became the new lower house speaker, signaling that the country’s interim government has a better chance of winning lawmakers’ support for a plan to pull the country out of recession.

Hong Kong’s Hang Seng China Enterprises Index advanced 1.1 percent to a one-month high. China is set to report second-quarter gross domestic product data Friday, with economists predicting an expansion of 6.6 percent, which would be the slowest since 2009.

Currencies

The MSCI Emerging Markets Currency Index climbed 0.6 percent. The rand advanced 1.8 percent versus the dollar. Brazil’s real gained 0.4 percent.

The ruble jumped 1.6 percent. Credit Suisse Group AG said the currency was the most attractive among emerging-market peers at current oil-price levels. Brent crude increased 2.4 percent to $47.37 a barrel after losing almost 5 percent yesterday.

The won rose 1.2 percent to a two-month high. South Korea’s seven-day repurchase rate was left unchanged at a record low 1.25 percent, as forecast by all 20 economists in a Bloomberg survey. The country’s central bank also cut its projection for economic growth and inflation amid an uncertain economic outlook.

Bonds

Hungarian government bonds gained for a second day, with the yield on 10-year notes falling one basis point to 2.8 percent. The National Bank of Hungary will place a cap on deposits to its three-month facility in a mode of unconventional easing after policy makers announced in May they were done cutting the base rate, now at a record-low 0.9 percent.

Malaysia’s three-year bond yield fell 11 basis points to 2.88 percent, the lowest for a benchmark of that maturity since 2009, according to prices from Bursa Malaysia. Bank Negara Malaysia reduced the overnight rate to 3 percent, the first policy shift since it tightened in 2014.

The premium investors demand to own emerging-market bonds rather than U.S. Treasuries narrowed five basis points to 355, according to JPMorgan Chase & Co. indexes.

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