Emerging markets race to year highs on stimulus prospects

Bloomberg

Emerging-market stocks and currencies headed for the highest close 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 assets gained 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 strengthened for a fifth day as oil approached $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 moves by central banks in Japan and Australia to shore up their economies, underpinning 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 markets stocks seem to have brushed off the U.S. payrolls figure,” Jackson said.
Stocks
The MSCI Emerging Markets Index advanced 1 percent as of 2:23 p.m. in London, set for its highest close since July 2015. The gauge has risen 13 percent this year, compared with a gain of just 3.6 percent for the MSCI World Index of developed-market equities.
All 10 industry groups advanced Monday, led by producers of industrial goods and financial companies. China Communications Construction Co. rose 6.3 percent in Hong Kong, while Lenovo Group Ltd. added 6 percent.
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. Korean stocks rallied after S&P raised the country’s credit rating by one level to AA, citing steady economic growth and adding it expects geopolitical risks to be contained. The benchmark Kospi index gained 0.7 percent.
“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.”
Chinese stocks in Hong Kong climbed to a seven-month high, with the Hang Seng China Enterprises Index gaining 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.
Turkish stocks gained 2.1 percent and the Czech Republic’s PX index rose 1.4 percent, the most in three weeks, led by a 2.8 percent gain for Komercni Banka AS, which is rebounding from the lowest in more than 2 1/2 years.