(Bloomberg) — Emerging-market currencies headed for their biggest weekly gain in seven years and stocks jumped as prospects for a U.S. rate increase in 2015 receded and oil surged.
An index tracking 20 developing-nation exchange rates climbed 3.4 percent 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 6 percent against the dollar. An MSCI gauge of emerging-market stocks was set for 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. Oil headed for the biggest weekly gain since August, boosting shares in oil-exporting nations including Russia.
Interest-rate futures are pricing in a 39 percent likelihood of an increase in U.S. rates in December, down from 60 percent 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 U.S. 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.
Weak U.S. data “have helped boost sentiment, and so has the turn in commodity prices,” Per Hammarlund, chief emerging-market strategist in Stockholm at SEB AB, said. “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 Slowdown
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 percent from a year earlier, while inflation slowed to 1.8 percent, according to the median estimates of Bloomberg surveys.
Indonesia’s rupiah has jumped 8.8 percent against the greenback since Oct. 2, according to prices from local banks compiled by Bloomberg. The ruble strengthened 7.9 percent, Malaysia’s ringgit rose 6 percent, while the Colombian peso advanced 5.2 percent.
Pimco, which oversees $1.52 trillion of assets, said Thursday it expects emerging-market currencies to come under renewed pressure and favors investments that will profit from their depreciation. The rally is unlikely to endure due to slowing growth and prospects of policy easing in Asia, according to Khoon Goh, a senior strategist at ANZ in Singapore.
Sharp Rally
“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,” Goh wrote in a report on Friday. “We still see challenging times ahead for Asian currencies.”
The MSCI Emerging Markets Index climbed 1.4 percent at 11:23 a.m. in London, extending gains this week to 7 percent. All 10 industry groups rose. CNOOC Ltd. led energy shares toward the largest weekly increase since October 2011. Oil rose above $50 a barrel for a second day amid speculation an increase in demand will ease a global glut.
Equity markets in Hungary, Russia and the Czech Republic rose at least 1.3 percent. The Polish zloty appreciated 0.2 percent versus the euro, the steepest gain among peers in eastern Europe and Africa.
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. Indonesian shares headed for the best weekly gain since April 2009 and Malaysian equities was poised for their steepest rally since 2008. Russia’s Micex Index climbed 5.5 percent this week, set for the largest increase in six months.
“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 percent this year and is valued at 11.4 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has retreated 2.4 percent in 2015 and is valued at a multiple of 15.6.
The premium investors demand to own emerging-market debt over U.S. Treasuries widened one basis point to 403, according to JPMorgan Chase & Co. indexes.
By Lilian Karunungan and Lyubov Pronina