Market Watch: Emerging Stocks Climb to Four-Week High as Turkish Bonds Advance

LAGOS, Nigeria, Capital Markets in Africa: Emerging-market stocks headed for its highest close in four weeks as rising oil prices bolstered optimism the global economy is strong enough to withstand an U.S. interest-rate increase. Turkish bonds rallied after core inflation fell the most in more than a year.

The MSCI Emerging Markets Index capped a 0.4 percent advance for the week after Brent crude closed above $50 a barrel and OPEC ministers said global oil markets were improving. Shares in Poland and Turkey jumped more than 1 percent. Indonesia’s rupiah and South Korea’s won led gains in emerging-market currencies before a U.S. job report that may determine when the Federal Reserve will raise rates. The yield on Turkey’s 10-year bonds dropped 11 basis points, capping the biggest drop among peers for the week.

The rebound in oil has improved the fiscal position of countries from Russia to South Africa and Brazil that rely on commodity exports, helping cushion concern that the Federal Reserve will resume interest-rate increases as early as this summer and spur outflows from riskier assets. Traders will be looking for clues in the U.S. payrolls report today on whether the economy is strong enough for monetary tightening to continue.

“All eyes are going to be on the payrolls later today and what they might imply for the Fed,” said David Rees, a senior markets economist at Capital Economics in London. “Oil is stabilizing around $50. We have a fairly positive outlook on emerging-market equities but there are plenty of risks on the way, one of them is potential risk for the Fed and another one could be the U.K. referendum later this month.”

Stocks gained this week as traders trimmed back their bets for the Fed to tighten policy at its June 14-15 meeting to 22 percent from 30 percent a week ago. U.S. employers probably added 160,000 workers in May, the same figure as April, according to a Bloomberg survey before the data is released Friday.

Brent crude was little changed in London, trading at $50 a barrel in London as investors shrugged off OPEC’s decision to stick to its policy of unfettered output amid signs the global market is re-balancing.

“The rebound in oil has been positive for emerging-market stocks,” said Danny Wong Teck Meng, chief executive officer of Kuala Lumpur-based Areca Capital Sdn., which manages about $224 million. “Markets are still not certain on the Fed decision, and there’s still uncertainty on the looming Brexit” vote on June 23 when the U.K. will vote on whether to leave the European Union, he said.

Stocks 
The MSCI Emerging Markets Index rose 0.4 percent by 12:30 p.m. in London, set for the highest close since May 4. Companies on the gauge trade at 11.8 times projected 12-month earnings, compared with a multiple of 16.1 for the MSCI World Index.

Eight out of 10 industry groups climbed on Friday as Samsung C&T Corp. jumped the most since November, rising along with industrial shares. The company said it is considering splitting off businesses and not considering any merger with Samsung SDS Co., which fell to a record. China Long yuan Power led gainers among utility companies, rising 7.1 percent after Goldman Sachs said the company is a “preferred stock” in the alternative energy industry.

Polish copper producer KGHM Polska Miedz SA added 5 percent, helping boost the WIG20 Index 1.4 percent and trimming a weekly loss.

For a story on why the rebound in Polish stocks may be short-lived, click here.

The Nigerian All Share Index gained 1.4 percent, paring this week’s loss to 4.6 percent. Speculation the country will devalue its currency has been weighing on stocks.

The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong rose for a sixth day, while the Shanghai Composite Index posted its first weekly gain in almost two months.

Currencies 
The MSCI Emerging Markets Currency Index was little changed at 1,482, heading for a loss of 0.3 percent for the week.

Indonesia’s rupiah strengthened 0.4 percent. The won gained 0.3 percent, while currencies in the Philippines and Malaysia also rose versus the dollar. South Africa’s rand weakened on Friday, trimming the biggest advance among 24 developing countries this week.

Bonds 
The premium investors demand to own emerging-market debt over U.S. Treasuries rose one basis point to 395 basis points.

Turkey’s 10-year yield fell to 9.75 percent, bringing the weekly drop to 31 basis points. Core inflation fell to 8.77 percent in May from 9.41 percent the previous month, a drop that gives encouragement the central bank can continue a cycle of interest-rate cuts begun in March.

South Korea’s three-year bonds had their best week since April.

Source: Bloomberg Business News