Emerging-Market Stocks End Two-Day Drop on Oil as Rand Rallies

LAGOS, Nigeria, Capital Markets in Africa: Emerging-market stocks rose for the first time in three days as oil trading above $40 a barrel boosted energy producers. South African bonds and the rand rallied as local election results showed increased support for the main opposition party.

Equity markets in Russia and Dubai advanced at least 0.6 percent, helping emerging-market equities rebound from their biggest two-day drop in a month. South Africa’s rand headed for its strongest close in nine months and bond yields fell to a 2016 low as early election results showed the ruling African National Congress is trailing the main opposition party in the four biggest cities. Brazilian assets gained the day before the Olympics open in Rio de Janeiro and Egyptian stocks rose the most in emerging markets.

Oil’s bounce back above $40 a barrel is helping renew momentum in a rally that’s driven developing-nation stocks to outperform peers in industrialized countries this year since nations from Russia to Brazil export commodities. Gains on Thursday were also supported by the Bank of England’s decision to cut its benchmark interest rate to a record-low, adding to stimulus efforts from Europe to Japan that’s boosted demand for riskier assets.

“We’re seeing the emergence of a credible opposition in South Africa, which is good for democracy,” said Peter Kinsella, the head of emerging-market economics and foreign-currency research at Commerzbank AG in London. “Things are looking a lot more constructive for South Africa from an investor’s viewpoint. Elsewhere, the slight increase in the oil price and Bank of England easing is boosting demand for riskier assets.”

The MSCI Emerging Markets Index of stocks climbed 0.8 percent to 874.92 as of 1:49 p.m. in London after sliding 1.6 percent in the previous two days. All of the 10 industry groups advanced, led by the energy sector. The MSCI Emerging Market Currency Index climbed 0.3 percent.

Election Boost
The rand climbed 1.2 percent to 13.7493 against the dollar, the best performer among major global currencies tracked by Bloomberg. A close at this level would be its highest since Nov. 3. The yield on five-year notes dropped seven basis points to 8.08 percent.

The Democratic Alliance, which has promised to end corruption and make it easier to do business, led in Tshwane, the municipality that includes the capital, Pretoria, with 44.7 percent of the vote. The ANC had 41.6 percent, the early tallies released by the Independent Electoral Commission show. In Johannesburg, the ruling party had 40.6 percent support compared with the DA’s 43.9 percent.

The DA was also ahead in the Nelson Mandela Bay municipality, which includes Port Elizabeth, with 50.7 percent support, compared to the ANC’s 38.7 percent, and looks set to increase its majority in Cape Town.

Stocks
Oil pipeline company AK Transneft helped lead a 0.8 percent gain in Russia’s Micex Index, while stocks in Dubai jumped 1.2 percent, the most in almost two weeks. Ibovespa futures in Brazil rose 0.5 percent.

Hungarian equities jumped 1.7 percent, the most in nearly a month. Shares of OTP Bank Nyrt. surged after Russia’s Vnesheconombank was said to be considering the sale of its Ukrainian unit to the largest lender in Hungary, Kommersant reported.

Egyptian stocks rallied 1.9 percent to the highest level in more than a year as local funds increased their holdings to protect against a possible devaluation in the country’s currency, which is expected to be a condition of a a loan agreement with the International Monetary Fund.

Chinese shares advanced for a third day after the People’s Bank of China said Wednesday it would keep prudent monetary policy in the second half. The Shanghai Composite Index gained 0.1 percent.

Currencies, Bonds
The Polish zloty pared the biggest two-day rally against the euro in more than a year, dropping 0.3 percent, as analysts at Raiffeisen Bank International AG said some remaining uncertainty on plans to convert household mortgages limited the scope for further gains.

The Brazilian real, Mexican peso and South Korean won all advanced more than 0.3 percent, while Turkey’s lira retreated by the same amount.

Turkish government bonds advanced for the first time in four days, with the yield on 10-year notes falling six basis points to 9.81 percent. Moody’s Investors Service, which rates Turkey one step above junk, is due to update its view on Friday after it put the country under review for a downgrade on July 18.

The premium investors demand to own emerging-market bonds rather than U.S. Treasuries widened one basis points to 363, according to JPMorgan Chase & Co. indexes.

Source: Bloomberg Business News