Market Watch | Emerging Markets Climb for Fifth Day on Higher Oil, China Data

LAGOS, Nigeria, Capital Markets in Africa: Emerging-market stocks rose for a fifth day with currencies as crude oil extended gains above $50 a barrel and Chinese trade data bolstered confidence the world’s second-biggest economy was stabilizing.

Equity valuations rose to a one-year high as commodity producers led shares to the longest winning streak in two months. South Africa’s rand, Brazil’s real and Russia’s ruble helped lift a gauge of currencies to a one-month high. Chinese stocks in Hong Kong capped the longest run of gains in nine years. Oman marketed five- and 10-year bonds as the extra yield investors demand to hold emerging market debt rather than Treasuries fell to the lowest since April.

Emerging markets have rallied in the past week after jobs data missed forecasts, spurring speculation that the Federal Reserve will keep borrowing costs lower for longer. A jump in commodity prices and signs that China’s economy is on the mend helped underpin sentiment toward riskier assets. Exchange-traded funds targeting stocks in developing economies attracted more than $1 billion of inflows in the last two days, according to Markit Economics Ltd.

“Emerging-market sentiment has gotten a big boost from the Fed, which has led to a weakening of the dollar and helped flows,” said Maarten-Jan Bakkum, a senior strategist at NN Investment Partners in The Hague, who favors Indian shares. “Also, the Chinese trade numbers looked a bit better than expected. Higher oil prices always make investors more comfortable” about emerging markets, he said.

Stocks 
Energy and materials companies led gains in the MSCI Emerging Markets Index, which rose 1 percent to 843.92 as of 2:52 p.m. in London, the highest since April 22 on a closing basis. While volatility has fallen to an 11-month low, a momentum indicator signaled stocks may be climbing too far, too fast. The 14-day relative-strength index rose above 72, a level that signals to some analysts that the direction will reverse.

The developing-nation equity measure has advanced 6.3 percent this year and trades at 12.3 times its projected 12-month earnings. The MSCI World Index has advanced 2.3 percent in 2016 and is valued at a multiple of 16.3.

Shares in the Middle East gained, with benchmarks for Saudi Arabia and Abu Dhabi climbing more than 1 percent, as Brent crude rose for a third day to an eight-month high.

The Hang Seng China Enterprises Index in Hong Kong rose 0.3 percent, advancing for a ninth day. Mainland markets will be closed for holidays for the rest of the week, while Hong Kong’s will shut on Thursday.

China’s imports increased 5.1 percent from a year earlier in local-currency terms in May, ending a run of 16 monthly declines, a report showed Wednesday ahead of a two-day holiday in the nation. Economists predicted a 2.5 percent decrease, a Bloomberg survey showed.

Currencies 
The MSCI Emerging Markets Currency Index advanced 0.8 percent, poised for the highest close since May 2. The ruble strengthened for a fifth day, advancing 1.7 percent to the highest since November. Colombia’s peso also gained 1.7 percent and the real added 1.4 percent.

South Africa’s rand climbed 1.7 percent after Fitch Ratings affirmed the nation’s investment-grade status with a stable outlook. The currency slid 0.5 percent earlier following a report showing the economy contracted more than forecast.

The zloty advanced 0.9 percent against the euro to the strongest in a month after Poland’s central bank kept its lending rate at 1.5 percent, in line with economists’ estimates.

Bonds 
The extra yield investors demand to hold emerging market debt over Treasuries fell two basis points to 384, according to JPMorgan Chase & Co. indexes. The spread has narrowed 12 basis points this week.

Oman is marketing dollar bonds today, the latest offering among issuers from the six-nation Gulf Cooperation Council that are tapping international markets to fund budget deficits following a slump in oil prices.

Local currency bonds advanced, with Russia’s 10-year yield falling six basis points to 8.64 percent. Polish five-year note yields dropped six basis points to 2.29 percent.

South Korean bonds rose on a plan to create an 11 trillion won ($9.5 billion) fund to bolster finances at state lenders. The yield on three-year sovereign notes fell by two basis points to 1.4 percent.

In Malaysia, 1MDB Energy Ltd.’s dollar bonds due May 2022 fell after Moody’s Investors Service withdrew its rating on the notes, citing “its own business reasons.” Malaysia’s troubled state investment company 1Malaysia Development Bhd. said Wednesday its liquidity position is “strong.”

Source: Bloomberg Business News