Emerging Markets Rise on Yellen Comments, China Growth Outlook

  • Asian equities rise as Chinese producer prices increase
  • Thai assets rebound after king’s death amid royal transition

China PPI Rose for First Time Since 2012

Emerging-markets stocks rose for the first time in four days as Federal Reserve Chair Janet Yellen reassured investors that policy makers will raise U.S. interest rates slowly and a surprise increase in China’s producer prices signaled that the nation’s economic slowdown is stabilizing.

MSCI Inc.’s developing-nation equity gauge rose 0.7 percent to 897.03 after Yellen said in a speech that there are “plausible ways” that running the U.S. economy hot for a while could be beneficial, easing concern that policy makers may speed up the pace of borrowing-cost increases. The comments came after data showed Chinese factory-gate prices rose for the first time since 2012. The Ibovespa jumped to the highest level since 2014 in Sao Paulo on speculation that the central bank may lower borrowing costs next week after the Brazilian state-controlled oil company surprisingly cut fuel prices.

The Fed chair’s comments and Chinese inflation data helped lift emerging-market assets after a three day-rout driven in part by a separate report showing China’s exports fell as the odds of a U.S. interest-rate increase this year remained above 60 percent. The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, has climbed 0.9 percent this week.

“While the Fed wants to prepare the global market for a slow increase in the key rate, they definitely don’t want to shock the market, and this is something that Ms. Yellen reiterated,” Timothy Ghriskey, who helps manage $1.5 billion as chief investment officer at Solaris Asset Management LLC, said by phone from New York. “The fact that this is going to be an unprecedentedly slow increase in interest rates should appease EM fund managers.”

Friday’s gain in the MSCI Emerging Markets Index reduced its decline this week to 1.9 percent. The gauge has risen 13 percent this year compared with a 1.9 percent gain in developed-nation stocks.

The Ibovespa rose 1.1 percent. State-controlled Petroleo Brasileiro SA’s decision to cut fuel prices reinforced investors’ bets that the central bank will begin an easing cycle next week.

Thailand Stocks

Thailand’s SET Index jumped 4.6 percent, the most in since 2011, amid optimism that there will be a smooth transition of power following King Bhumibol Adulyadej’s death. Naspers Ltd. gained the most since January in Johannesburg after agreeing to sell its Polish Allegro business to Cinven, Permira and Mid Europa Partners. The FTSE/JSE All-Share Index rose 1.3 percent.

The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong added 1.2 percent, ending a four-day drop. The Shanghai Composite Index rose 0.1 percent.

The MSCI Emerging Markets Currency Index rose 0.3 percent, reducing its weekly loss to 0.7 percent. Fed futures pricing implies a 68 percent probability of a U.S. interest-rate move by the end of this year. After its meeting in September, the U.S. central bank’s so-called “dot plot,” which it uses to signal its outlook for borrowing costs, showed policy makers see two moves next year, down from their projection of three in June.

Baht, Rand

The baht climbed 0.8 percent, taking its two-day gain to 1.1 percent. It’s still down 1.1 percent for the week as Thailand mourns the death of its 88-year-old monarch, a unifying force in a nation which has seen 10 coups during his seven-decade reign. South Africa’s rand lost 3.1 percent this week, driven by news of fraud charges against Finance Minister Pravin Gordhan and the stronger dollar.

The premium investors demand to own emerging-market sovereign bonds over U.S. Treasuries narrowed for the first time in five days, dropping three basis points to 333, according to JPMorgan Chase & Co. indexes.

Flows into emerging-market dedicated bond funds slowed in the week to Oct. 12 to $948 million, the smallest level since May, according to by Morgan Stanley in a research report.

Thai 10-year government bonds rose on Friday, pushing the yield down eight basis points to 2.21 percent, leaving it little changed for the week. Global funds pulled more than $950 million from Thai bonds in four straight days of selling, heading for the largest weekly outflows since May 2013, as concern rose for the king’s health.

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