Emerging Markets Rebound as Investors Wait Await Fed Guidance

  • Global yield hunt may continue after Yellen speech: Informa
  • Colombia peso, Russian ruble strengthen as oil prices rise

Geopolitical Headwinds to Emerging Market Economies

Emerging markets rebounded, with currencies advancing after their biggest decline in two months, as investors awaited clues on the timing of a U.S. interest-rate increase from a speech by Federal Reserve Chair Janet Yellen.

Colombia’s peso and the Russian ruble strengthened as oil prices rose. Swings in exchange rates have sent volatility for developing-nation currencies to the highest in almost two months. The MSCI Emerging Markets Index staged a comeback as equity benchmarks from Turkey to Russia and Taiwan advanced.

Emerging markets clawed back some of this week’s losses, triggered by political and security flare-ups in South Africa, Turkey and Korea as well as speculation that the U.S. is moving closer to raising borrowing costs. Developing-nation assets have benefited as near-zero rates in major economies drive investors toward higher-yielding assets.

“Investors are adjusting their positions ahead of Yellen’s speech,” said Christopher Shiells, a senior emerging-markets analyst at Informa Global Markets, who recommends buying the Polish zloty and selling the rand. “There is a growing sense that once Yellen is out of the way, and as long as she doesn’t turn hawkish, the great global yield hunt will continue next week.”

Yellen is set to speak on Friday at a symposium in Jackson Hole, Wyoming. Fed fund futures show the odds of an increase in 2016 have climbed to 57 percent from 47 percent a week ago. Jackson Hole has only been a big market mover once in the past 10 years when former Fed Chairman Ben S. Bernanke signaled a second round of quantitative easing in 2010, according to Bank of America Corp.

Rand Slump

The MSCI Emerging Markets Currency Index advanced 0.2 percent. The developing-nation equity benchmark also increased 0.2 percent after posting the biggest decline since July 6 on Wednesday. The premium investors demand to hold developing-nation bonds narrowed one basis point to 335, according to JPMorgan Chase & Co. indexes.

South Africa’s rand fell for a fifth day, weakening 0.3 percent. The currency has fallen 5.2 percent this week amid speculation Finance Minister Pravin Gordhan will be replaced. A special police investigative unit told him to report to its offices on Thursday as part of an investigation into irregularities at the country’s tax authority.

Gordhan said he had done nothing wrong by authorizing the establishment of a special investigative unit when he headed the national tax agency and wouldn’t comply. President Jacob Zuma said that while the finance minister has his “full support and confidence,” he has no power to stop the probe.

For a QuickTake overview of South Africa’s political turmoil, click here.

South Korea’s won strengthened 0.6 percent against the greenback, recovering Wednesday’s decline spurred by North Korea’s launch of a ballistic missile test. The Colombian peso gained 0.9 percent. The ruble rose 0.7 percent. Brent crude gained 1.3 percent to $49.67 a barrel.

Emerging-market currency volatility closed at 10.24 percent on Wednesday, the highest since July 6, JPMorgan indexes show.

Turkish local-currency bonds rose, sending the yield on 10-year securities down eight basis points to 9.73 percent, the lowest level in more than a week. The rate on similar-maturity Russian debt fell four basis points to 8.3 percent.

BlackRock’s View

A rally that has seen emerging-market bonds post their best returns this year since 2009 has further to go as valuations and fundamentals continue to look attractive, BlackRock Inc. money manager Amer Bisat told Bloomberg Television on Wednesday.

“In a world in which core fixed-income is still offering you no rates or no yield or negative yield, emerging markets stand out like a sore thumb,” Bisat said. “We are still overweight emerging markets and we feel very comfortable with that position.”

The MSCI developing-nation equity gauge has climbed 2.8 percent this month, compared with a 0.3 percent advance for the MSCI World Index of developed-country shares.

The Borsa Istanbul 100 Index ended a three-day decline, rising 0.9 percent. Turkish stocks slumped the most in three weeks Wednesday as the country launched its biggest military operation in Syria to keep the Islamic State group away from its border. The Taiex Index jumped 1.1 percent, the most since July 11.

The Shanghai Composite Index retreated 0.6 percent on concern the government will act to cool speculative activity in the nation’s financial markets.

— With assistance by Jung Park, Giang Nguyen, and Y-Sing Liau

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