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Hanoi - Emerging-market stocks headed for the biggest two-day rally since 2011 as oil held onto its gains and investors bet some of the world’s biggest central banks will boost stimulus to prop up assets.
All 10 sectors in the MSCI Emerging Markets Index rose, led by energy shares, extending an advance on Friday that was the biggest since August. Brent crude climbed, after jumping the most in more than seven years as hedge funds reduced bets prices would keep falling. A measure of emerging-market currencies rose for a third day to extend its recovery from a record low.
The won led gains to head for its biggest two-day advance since October before data forecast to show South Korea’s economic growth quickened.
Growing speculation central banks will cut or avoid raising interest rates is buoying markets in the midst of the worst start on record for global stocks. European Central Bank President Mario Draghi signalled on Thursday that stimulus measures may be boosted as early as March.
And while China’s economy is decelerating, it won’t be a cataclysmic slowdown, according to attendees at last week’s World Economic Forum in Davos, Switzerland, including Nobel laureate Joseph Stiglitz and Credit Suisse Group AG chief executive officer Tidjane Thiam.
"The probable closing of short oil contracts leading oil prices higher and the consensus in Davos on a soft landing for China eased market fears,” Attila Vajda, managing director of Project Asia Research & Consulting Pte, a Singapore-based advisory firm, said from Ho Chi Minh City. “But it’s likely that we are not out of the woods yet” and funds probably won’t return to Asian emerging markets until later in 2016, Vajda said, adding that he would look to buy stocks with earnings mainly driven by domestic consumption.
Stocks
The MSCI Emerging Markets Index rose 1.2% to 718.93 as of 1:34 p.m. in Hong Kong. The gauge has fallen 9.5% this year and is trading at 10.5 times its projected 12-month earnings, compared with 14.8 for the MSCI World Index. Hong Kong’s Tencent Holdings provided the biggest boost to the gauge, rising 3%, followed by HSBC Holdings with a 1.8% increase.
The Hang Seng China Enterprise Index of mainland shares in Hong Kong climbed 0.7%, while the Shanghai Composite Index advanced 0.6%. The gauge, whose gyrations at the start of the year sparked the global selloff, ended up 1.3% on Friday as China signalled it would curb overcapacity in industries such as coal that have been dragging down economic growth.
Taiwan’s benchmark stocks index was up by 1.8%, Vietnam’s VN Index rose 3.1% and gauges in Thailand and Indonesia were up by 1% or more. Malaysian markets are closed for a public holiday.
The developing-nation currencies gauge rose 0.2%, following a 1% jump on Friday after it fell to an unprecedented low two days earlier. The won was up 0.6%, following a 1.1% advance on Friday, while the Taiwanese dollar strengthened 0.4% and South Africa’s rand advanced 0.3%. Brent crude has rallied 17% in three days, but is still down 12% this year.
“Emerging-market currencies have benefited from expectations of more central bank policy easing,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore. “I think the market is generally hopeful that the Federal Reserve may highlight the risk to inflation from lower oil prices and therefore push back against expectations of tightening” when it meets this week, he said.
The offshore yuan rose for the first time in five days after China stepped up verbal defense of its currency to ward off speculators betting on depreciation. The currency is down 0.6% this year, while the onshore yuan has dropped 1.3%.
Bonds
Chinese sovereign bonds fell on speculation the central bank will be cautious in cutting lenders’ reserve requirements amid depreciation pressure on the yuan. The 10-year yield rose nine basis points to 2.87% in the biggest increase since November.
The yield on similar-maturity Philippine securities dropped seven basis points to 4.30%, while that on South Korean notes fell two basis points to 2.02%.
