Emerging Assets Rise as Global Rate Outlook Fuels Risk Demand

  • JPMorgan ‘a little more positive’ amid improving fundamentals
  • Won, rand lead exchange rates higher against the dollar

Looking to Hang Seng as an S&P 500 Alternative

Developing-nation stocks and currencies rose for the first time in three days as traders weighed the odds that central banks including the Federal Reserve will keep interest rates lower for longer, supporting demand for higher-yielding assets in emerging markets.

Ten-year Turkish bonds rose for the first time in five days after the central bank lowered its overnight lending rate by 25 basis points. South Korea’s won and the South African rand led currencies higher as investors assessed the path of Fed policy before Chair Janet Yellen’s Aug. 26 speech at Jackson Hole, Wyoming. The Ibovespa gained after Brazil signaled stepped up efforts to trim a budget deficit. The Micex Index rose further to a record high as oil, Russia’s biggest export, rose toward $50 a barrel in London.

A third monthly gain in stocks and currencies has come under threat amid increased bets for U.S. policy tightening this year, after New York Fed President William Dudley last week said markets may be underestimating the odds and Dennis Lockhart of Atlanta said accelerating economic growth may warrant at least one increase in 2016. Investors are now waiting to see if Yellen will use her Wyoming speech to signal an imminent move.

“Price action will remain driven by Jackson Hole expectations and general central bank rhetoric,” said Simon Quijano-Evans, emerging-market strategist at Legal & General Investment Management in London. A lack of “meaningful” gain in global interest rates “keeps the hunt for yield in emerging markets going in spite of temporary hiccups like domestic politics,” he said.

Currencies Gain

The MSCI Emerging Markets Currency Index rose 0.3 percent as of 11:07 a.m. in New York. The South Korean won added 0.9 percent, the steepest advance among emerging-market peers. The rand increased 0.7 percent.

Turkey’s lira strengthened 0.1 percent. Policy makers cut the overnight lending rate by 25 basis points to 8.5 percent, matching the median estimate in a Bloomberg survey.

Improving fundamentals in developing nations has JPMorgan Asset Management “starting to get a little less negative, a little more positive” on emerging markets, global market strategist Gabriela Santos said on Bloomberg TV. “We are seeing inflation come down in certain countries,” she said. “We are perhaps seeing a bottom in those very hard hit areas.”

BlackRock Inc., the world’s largest money manager, upgraded emerging-market equities to overweight from neutral this week, citing improved fundamentals and a stable outlook for the dollar as the Federal Reserve moves slowly in raising U.S. interest rates.

The MSCI Emerging Markets Index rose 0.3 percent to 906.70, ending a 1.3 percent two-day loss. Samsung Electronics Co. contributed the biggest boost to the gauge with technology and consumer-staples companies leading gains.

Petroleo Brasilero SA, the state-controlled oil company, led gains in Sao Paulo, adding 2.7 percent. The Ibovespa increased 1 percent. The Micex gained 0.6 percent.

LG Household & Health Care Ltd. advanced 6.5 percent amid optimism sales will rise after data showed Chinese tourists visiting South Korea increased threefold in July from a year earlier.

The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed one basis point to 336, according to JPMorgan Chase & Co. indexes.

Turkish 10-year bonds rallied, sending the yields down eight basis points to 9.79 percent. The overnight lending rate, the top end of Turkey’s interest corridor, has fallen 225 basis points since March to 8.5 percent.

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