Emerging Markets Rally to One-Year Highs on Stimulus Prospects

LAGOS, Nigeria, Capital Markets in Africa: Emerging-market stocks and currencies rose to their highest levels in more than a year as prospects for central bank stimulus and a better-than-expected U.S. jobs report fueled demand for higher-yielding assets.

Turkish bonds rallied and the lira strengthened after Moody’s Investor Service delayed a potential sovereign downgrade. South Korean stocks rallied after S&P Global Ratings raised the country’ credit ranking. Russia’s ruble rose for a fifth day as oil sold for more than $45 a barrel. The premium investors demand to own emerging-market bonds rather than U.S. Treasuries fell to lowest in a year.

The Bank of England unveiled a stimulus package on Thursday, adding to similar steps taken by central banks in Japan and Australia to shore up their economies. The moves underpinned efforts to keep the global economy growing. The search for yield by investors is drawing money to riskier assets, with investments into exchange-traded funds that buy emerging-market stocks and bonds adding a record $5.3 billion this year in inflows.

“Investor appetite to emerging markets seems to have improved recently, and there is also the prospect of looser policy by developed world central banks, which seem to buoy emerging-market equity,” said William Jackson, a senior emerging-markets economist at Capital Economics in London.

U.S. employers added 255,000 workers in July, the Labor Department said on Friday, exceeding all forecasts in a Bloomberg survey of economists, suggesting the U.S. economy is strong enough to sustain growth while only triggering a gradual increase in interest rates. While bets have advanced the Federal Reserve may need to raise interest rates in the next year, “emerging-market stocks seem to have brushed off the U.S. payrolls figure,” Jackson said.

The MSCI Emerging Markets Index advanced 1.1 percent to 895.53, its highest close since July 2015. The gauge has risen 13 percent this year, compared with a 3.4 percent gain in the MSCI World Index. All 10 developing-nation industry groups advanced Monday, led by industrial and financial stocks.

Thailand’s SET Index gained 1.6 percent, the most since Feb. 19, after voters approved a new military-backed constitution in the first ballot since a coup two years ago. The passing of the charter means the junta, which has boosted public spending in an attempt to spur economic growth, is more likely to stick to its current timeline of holding elections by late 2017.

South Korea, China
The Kospi Index gained 0.7 percent after S&P raised South Korea’s credit rating by one level to AA, citing steady economic growth and adding it expects geopolitical risks to be contained.

“Korea has exhibited stronger economic performance in recent years than most other high-income economies” S&P said in a statement. “The Korean economy remains well-diversified and is not dependent on a particular industry or export market.”

The Hang Seng China Enterprises Index gained 1.1 percent, while the Shanghai Composite Index added 0.7 percent. The Jakarta Composite Index rose 0.4 percent after overseas investors boosted their holdings of Indonesian stocks by $583 million last week. Bumi Serpon Dami PT added 5.7 percent to a record.

The Borsa Istanbul 100 Index gained 2.3 percent.

Currencies
The MSCI Emerging Markets Currency Index rose 0.2 percent, following a 0.6 advance percent last week.

The lira gained 0.5 percent against the dollar. The ruble strengthened 1.4 percent as oil, Russia’s biggest export, closed at $45.39 a barrel in London. Currencies of other commodity-exporting nations such as Colombia, South Africa and Mexico each appreciated more than 1 percent.

Brazil’s real, the best-performing currency in developing markets in 2016, declined 0.3 percent after a magazine reported that acting President Michel Temer was accused of receiving illegal campaign donations.

The yield on 10-year Turkish bonds fell 18 basis points to 9.72 percent, the lowest in a week. The rate on Russian bonds of similar maturity declined 10 basis points to 8.35 percent. Bonds in South Africa and Mexico also rose.

The premium investors demand to own emerging-market bonds rather than U.S. Treasuries narrowed four basis points to 346, the lowest in almost 13 months, according to JPMorgan Chase & Co. indexes.

Source: Bloomberg Business News