LONDON/SINGAPORE — Emerging-market currencies posted their biggest weekly gain in 17 years and stocks rallied as prospects for a US interest rate increase in 2015 receded and oil traded around the highest level since late August.
An index tracking 20 developing-nation exchange rates climbed 3.5% this week, recovering from its biggest quarterly loss since 2011. Indonesia’s rupiah and Russia’s ruble were the best performers, with gains of at least 7.9% against the dollar. An MSCI gauge of emerging-market stocks delivered its best week in almost four years as global funds pumped a net $1.2 billion into shares in Brazil, India, Indonesia, South Korea, Taiwan and Thailand. Brent crude gained 9.4% to $52.65 a barrel, boosting shares in oil-exporting nations.
Trading in Fed futures indicates a 39% likelihood of an increase in US interest rates in December, down from 60% a month ago, after minutes of the Federal Reserve’s latest policy meeting showed officials are concerned about China’s slowing growth and the risk of a stronger dollar weighing on US exports. Pacific Investment Management Co, Australia & New Zealand Banking Group Ltd and Commonwealth Bank of Australia said this week doesn’t mark the start of a turnaround in emerging currencies.
China slowdown
Weak US economic data “helped boost sentiment, and so has the turn in commodity prices,” said Per Hammarlund, the chief emerging-market strategist in Stockholm at SEB AB. “It’s as if all the worries about a sharp slowdown in China and low commodity prices have vanished. In fairness, many emerging- market currencies looked oversold in the short term and the correction that we are now seeing is a consequence of that.”
China, the world’s second-largest economy and the largest trade partner for several developing nations, is expanding at the slowest pace since 1990. The country will release data for September from next week. Exports probably dropped 6% from a year earlier, while inflation slowed to 1.8%, according to the median estimates of economists surveyed by Bloomberg.
Indonesia’s rupiah has jumped 9.2% against the greenback since Oct 2, according to prices from local banks compiled by Bloomberg. The ruble strengthened 7.9%, Malaysia’s ringgit rose 6.9%, while the Colombian peso advanced 5.2%.
Sharp rally
Pimco, which oversees $1.52 trillion of assets, said on Thursday it expects emerging-market currencies to come under renewed pressure and favours investments that will profit from their depreciation. The rally is unlikely to endure because of slowing growth and prospects of policy easing in Asia, according to Khoon Goh, a senior strategist at ANZ in Singapore.
“While a delay in Fed rate-hike expectations may have been the catalyst for the sharp rally in Asian currencies this week, we do not believe this is the start of a turnaround,” Mr Goh wrote in a report on Friday. “We still see challenging times ahead for Asian currencies.”
The MSCI Emerging Markets Index climbed 1.3% to 859.32 on Friday, pushing its gain for the week to 6.9%. All 10 industry groups rose. Sasol Ltd helped push a gauge of energy shares to a 14% weekly increase, the most since May 2009.
Russia, Brazil
Equity markets in Hungary, Russia, Poland and the Czech Republic rose at least 1%. The Ibovespa Brazilian stock benchmark gained 0.5%, while the real rallied for a second day, appreciating 0.6% against the dollar.
Hong Kong’s Hang Seng China Enterprises Index completed its best weekly surge since April as investors speculated the government will take more steps to boost the economy. Russia’s Micex Index climbed 7.3% this week, the largest increase since January.
“The Fed comments are prompting investors to come back to emerging markets,” said Gavin Parry, managing director of Parry International Trading Ltd. “That’s helped boost confidence.”
The MSCI developing-nation gauge has dropped 10% this year and is valued at 11.4 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has retreated 2.1% in 2015 and is valued at a multiple of 15.6.
The premium investors demand to own emerging-market debt over US Treasuries narrowed one basis point to 401 basis points, according to JPMorgan Chase & Co indexes.
The Thai baht movements against the US dollar over the past 30 days. (Bloomberg data)