Emerging Assets Rise as U.S. Election Outlook Kick-Starts Rally

  • Mexican peso rises from record low as Trump on defensive
  • Turkish bonds gain after selloff spurred by downgrade

Emerging-market assets rose for the first time in three days as investors bet Hillary Clinton won the first of three U.S. presidential debates, outweighing concern that a Donald Trump victory in November elections may roil financial markets.

Mexico’s peso strengthened from a record low against the dollar as Trump, who has pledged to renegotiate regional trade deals and step up immigration controls, was put on the defensive by the Democratic nominee in a televised face-off. Turkish bonds rose after a selloff spurred by the country’s downgrade by Moody’s Investors Service. Consumer and technology stocks led gains in the MSCI Emerging Markets Index.

Clinton and Trump clashed over trade, economy, race and foreign policy in an event that revealed their starkly different personalities and visions of the future. Citigroup Inc. has said an election victory for the Republican candidate could sink equities and may also spur volatility in gold and currency markets. The resumption of gains following a 1.3 percent drop Monday puts emerging-market stocks on course for the best quarter since March 2012 and currencies on track for a third quarterly rally.

“The debate supported the markets in bouncing back from yesterday’s selloff,” said William Jackson, an emerging-market economist at Capital Economics in London. “There is a good chance that volatility will continue until the elections. Given that valuations are not overly stretched and the macro-economic story is improving, there may be room for further gains.”

Currencies

The MSCI Emerging Markets Currency Index climbed 0.3 percent to the highest closing level since Sept. 8.

The Mexican peso strengthened 2.4 percent, leading developing-nation peers. The currency posted the worst performance in its group over the past month, fueled by polls that showed Trump gaining ground on Clinton. It has lost about a third of its value in the past two years. A Trump presidency could hurt bonds in emerging markets such as China and Mexico by weighing on global trade, according to Aberdeen Asset Management Asia Ltd.

The South African rand, the Colombian peso and South Korea’s won each gained at least 0.9 percent. Turkey’s lira rose from a two-week low.

Bonds

Turkey’s 10-year sovereign bonds rose for the first time in three days, sending the yield down 12 basis points to 9.68 percent. An auction of new 10-year notes on Monday received the greatest demand in two years, signaling that some investors consider the downgrade of the country to junk status by Moody’s as an opportunity to invest in the higher-yielding assets.

The premium investors demand to own emerging-market debt over U.S. Treasuries increased one basis point to 340, according to JPMorgan Chase & Co. indexes.

The MSCI Emerging Markets Index advanced 0.6 percent to 911.13. The gauge has gained 9.2 percent this quarter and is valued at 12.5 times the projected 12-month earnings of its members. That compares with a multiple of 16 for the MSCI World Index of developed-nation stocks, which gained 4 percent during the same period.

The Ibovespa advanced 0.6 percent. Consumer companies including retailer Lojas Renner SA helped boost the Brazilian equity gauge, offsetting a drop in commodity producers. The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong climbed 1.2 percent, halting a two-day drop. South Korea’s Kospi index advanced 0.8 percent.

Saudi Arabia’s Tadawul All Share Index fell 3.8 percent, the most since late January. The drop came as the kingdom canceled bonus payments for state employees and cut ministers’ salaries by 20 percent. The government also decided to suspend wage increases for the lunar year starting next month and curbed allowances for public-sector employees, according to royal decrees and a cabinet statement published by state media.

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