Gulf Assets Buoy Emerging Markets After Record Saudi Bond Sale

  • Draghi says ECB policy makers didn’t discuss QE extension
  • Russian ruble weakens after EU said to consider new sanctions

Saxo Bank: Investors Are Picking Up on the Saudi Story

Saudi Arabia’s record debt sale boosted assets in Gulf nations, helping to offset concern in emerging markets about the future path of global stimulus that has supported demand for higher-risk securities.

Saudi shares advanced the most in six months after the kingdom’s $17.5 billion bond offering on Wednesday. The MSCI Emerging Markets Index closed little changed after swinging between a 0.4 percent gain and a 0.2 percent decline. Turkey’s lira rose after the central bank unexpectedly left interest rates unchanged. Mexico’s peso fluctuated after the third U.S. presidential debate, signaling traders saw nothing in the matchup that changed their perception of whether Republican Donald Trump or Democrat Hillary Clinton is likely to win the election.

The Saudi bond sale boosted sentiment toward developing markets which have been muted this month amid headwinds from a heated U.S. presidential race and signs borrowing costs will rise in the world’s largest economy before the end of the year. European Central Bank President Mario Draghi told reporters in Frankfurt Thursday that the central bank didn’t discuss an expansion of its record stimulus program.

“Investor sentiment is rather peppy, helped by expectations that Trump’s chances have eased and the successful absorption of the Saudi bond deal,” said Koon Chow, a London-based strategist at Union Bancaire Privee. “Emerging markets are likely to recover some of the losses incurred in the first two weeks of October.”

Mexican Peso

The MSCI Emerging Markets Currency Index retreated 0.1 percent as declining exchange rates South Africa and Poland outweighed gains in Brazil and the Philippines.

The Mexican peso weakened 0.5 percent after it climbed as much as 0.4 percent to 18.4558, the most since Sept. 8. In the third debate, Trump repeated his pledge to renegotiate the North American Free Trade Agreement if he’s elected. His recent struggles have been a boon for the peso, which has climbed more than 7 percent since the first presidential debate on Sept. 26, the best performance among major currencies.

Russian Ruble

Russia’s ruble weakened 0.3 percent as a draft of conclusions obtained by Bloomberg for a Oct. 20-21 meeting of European Union leaders in Brussels said it was considering “all options” if the current “atrocities” in Syria continue, including further restrictive measures against individuals and entities supporting the Russian regime.

The Philippine peso jumped the second-most in emerging markets, advancing 0.4 percent, after President Rodrigo Duterte spelled out a foreign policy pivot to China. Duterte told hundreds of Filipinos in Beijing that “it’s time to say goodbye” to the U.S. and that he would welcome Chinese offers of aid, infrastructure funding and concessional financing.

The lira rose 0.1 percent after the central bank held all main interest rates. A median estimate in a Bloomberg survey predicted a quarter point reduction in its overnight lending rate to 8%. Brazil’s real gained the most in developing nations, adding 0.9 percent as the central bank adopted a hawkish tone in a policy statement following the first rate cut in four years.

Gulf Stocks

Saudi Arabia’s Tadawul All Share Index jumped 2.3 percent, the most since April 25, after the kingdom said it was repaying debts to contractors. Bourses in Bahrain and Dubai gained at least 0.7 percent. The Bloomberg GCC 200 Index of shares in the Gulf Cooperation Council rose 0.9 percent, the most this month.

The Ibovespa gained 0.5 percent in Sao Paulo. Vale SA, the world’s largest iron-ore producer, contributed the most to the Brazilian benchmark’s advance, rising 4.4 percent.

Six of 11 industry gauges on the MSCI Emerging-Market Index advanced, with real-estate stocks rising the most. Health care stocks were the worst performers. South Korean drug maker Celltrion Inc. fell 2 percent in Seoul after the company’s chief executive officer denied a report the company was going to sell itself.

Saudi Arabia’s own bonds gained on the first day of trading. The five-year securities rose 0.60 cents on the dollar as of 5:08 p.m. in Dubai, its 10-year notes added 0.90 cents and the 30-year bonds 1.34 cents, according to bid data compiled by Bloomberg. Since Saudi Arabia issued price guidance for its securities on Tuesday, Qatar’s 2046 bonds have jumped, driving the yield 11 basis points lower.

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