Emerging Markets Bounce Back as Fed Seen Holding Rates Steady

LAGOS, Capital Markets in Africa: Emerging-market stocks rebounded from their biggest weekly drop in four months as optimism that the Federal Reserve will delay raising U.S. interest rates rekindled risk demand.

Taiwan’s benchmark equity index jumped the most in a year on speculation demand for Apple Inc.’s latest iPhone model will boost earnings for the island’s suppliers. Hungarian bonds rose for a second day as S&P Global Ratings upgraded the country to investment grade. Russia’s ruble and the Colombian peso gained as Brent crude sold for more than $46 a barrel. South Africa’s rand led rose the most among developing-nation currencies as futures-trading data showed the implied odds of a Fed increase this month fell to 18 percent.

Investors are returning after $253 billion was wiped out of the value of 31 major emerging equity markets in September, interrupting a three-month rally that pushed valuations to the highest since 2010. Developing-nation assets are luring investors with the prospect of bigger returns in a world of near-zero interest rates as markets brace for clues on the future course of monetary stimulus from U.S. and Japanese central bank meetings.

“We are seeing a bit of a bounce as investors realize that the Fed is likely to remain dovish and China is still printing reasonable data,” said Maarten-Jan Bakkum, a senior strategist at NN Investment Partners in The Hague, who recommends buying equities in India and Indonesia. “The weakness of the past weeks was not completely justified by what really happened with growth or Fed expectations.”

Official figures released on Sept. 13 showed Chinese industrial production, retail sales and fixed-asset investment exceeded economists’ estimates in August.

Economists are split over whether the Bank of Japan will add to unprecedented stimulus when it reviews policy this week on the same day as the Fed, a move that stands to boost demand for higher-yielding assets. The 18 percent chance the Fed will raise rates at its two-day meeting starting Tuesday compares with a 30 percent implied probability on Sept. 9, according to data compiled by Bloomberg.

Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $74.7 million, down from $785.7 million in the previous period, according to data compiled by Bloomberg. The last time investors added a smaller amount was in the week ended June 17, when flows totaled $58 million. Fund assets have grown $21.8 billion so far this year.

Stocks
The MSCI Emerging-Market Index rose 1.4 percent to 897.97 as of 11:04 a.m. in New York The benchmark equity gauge had slumped 2.6 percent last week, the biggest drop since May.

The Taiex index added 2.8 percent, its biggest increase since September 2015, after having been closed for holidays on Thursday and Friday. Taiwan Semiconductor Manufacturing Co., a major Apple supplier, jumped 5.2 percent, the most in a year. HTC Corp. surged 10 percent on reports the mobile-phone manufacturer will unveil a new handset.

Hungary’s stock index gained 1.7 percent, the most in six weeks, after the country was raised one step to the investment-grade rank of BBB- at S&P. Turkey’s Borsa Istanbul 100 Index rose 2.2 percent.

The Ibovespa advanced 1.2 percent in Sao Paulo. Brazilian commodity producers including Petroleo Brasileiro SA and Vale SA helped boost the benchmark gauge as the Bloomberg Commodity Index advanced 0.9 percent.

The Hang Seng China Enterprises Index, which tracks Chinese stocks traded in Hong Kong, added 1.6 percent as mainland investors extended a buying spree following last week’s holidays. The Shanghai Composite Index rose 0.8 percent.

Currencies
The MSCI Emerging Markets Currency Index climbed 0.4 percent after dropping 0.6 percent last week.

Colombia’s peso strengthened 1.2 percent. The ruble gained 0.9 percent. Brent crude jumped as much as 2.5 percent after clashes halted what would be the first oil shipment from Libya’s Ras Lanuf export terminal since 2014.

South Africa’s rand strengthened 1.2 percent, bringing its gain this month to 5 percent. The currency declined 6.1 percent in August amid an investigation of Finance Minster Pravin Gordhan.

The yield on Hungary’s 10-year bond fell 11 basis points to 2.83 percent, the biggest one-day decline since January 28. The S&P upgrade, coming after a similar move by Fitch Rating, now makes the debt eligible for investment by funds that can only buy high-grade securities.

The premium investors demand to own emerging-market debt over U.S. Treasuries fell two basis points to 344, according to JPMorgan Chase & Co. indexes.

Source: Bloomberg Business News