Emerging market stocks set for three-month gain

Seoul - Emerging market stocks were set to cap a three-month gain, the longest winning streak in two years, on speculation US interest rates will climb at a pace slow enough to sustain investor demand for riskier assets.

The MSCI Emerging Markets Index has risen 2.7% this month as investors factored in the odds the Federal Reserve will hike by the end of this year, after vice chairperson Stanley Fischer said incoming economic data will determine the trajectory of rate increases.

The MSCI Emerging Markets Currency Index held a two-month advance, with the won and rand leading gains on Wednesday. The Philippine  peso is set for the best performance among Asian currencies this month, supported by remittances and record-high foreign-exchange reserves.

“The bigger picture is that interest rates in the States and elsewhere in the world are going to remain very low,” Steve Brice, chief investment strategist at Standard Chartered Bank, told Bloomberg TV.

“If you look longer out structurally, growth has slowed on slow labor market growth and slow productivity growth: that means interest rates are going to remain benign, the Fed’s going to be tolerant of a little bit more inflation, and that should support emerging market assets over the 12-month time horizon.”

Stocks

The MSCI Emerging Markets Index fell 0.2% as of 09:40 from Tuesday. Eight out of 10 industry gauges fell, led by telecommunication services companies and information technology shares. Tencent Holdings dropped 1.1% in Hong Kong, while Samsung Electronics lost 1.5% in Seoul.

The Hang Seng China Enterprises Index fell 0.5%, paring its monthly gain to 6.6%. The Shanghai Composite Index rose 0.4%.

Equity gauges in Taiwan, South Korea and Thailand fell at least 0.3%. Philippines Stock Exchange PSEi Index retreated 0.1%, its sixth day of declines, the longest losing streak since May 3. Malaysian financial markets were closed for a holiday.

The Dubai Financial Market General Index rose 0.4%, advancing for a third day. The Borsa Istanbul 100 Index rose 0.1% after falling 1.3% on Monday. Russia’s Micex Index dropped 0.3%, extending declines for a third day.

Currencies

The MSCI Emerging Markets Currency Index rose 0.1%, halting a two-day decline. The won climbed 0.5% after a report showed South Korea’s July industrial output rose 1.6% from the previous year, exceeding the 0.4% increase estimated by economists in a Bloomberg survey.

The peso was up 1.1% from end-July and headed for the biggest monthly gain since March. The country’s foreign-exchange reserves were at a record high of $85.5bn in July and remittances in June were up 4.8%, the fastest growth since February, according to central bank data released this month. The currency fell 0.2% on the day.

The rand climbed 0.4%, halting an eight-day rout. The ruling African National Congress urged Finance Minister Pravin Gordhan to cooperate with a police investigation into allegations that he set up an illicit investigative unit when he headed the national tax agency, while criticizing the way the police have handled the case.

The developing-markets currency gauge slid 0.7% over the two weeks to August 26. Fed chair Janet Yellen gave a speech in Jackson Hole, Wyoming on Friday, when she said the case for higher borrowing costs has strengthened.

“Asian currencies were doing OK in the beginning of the month, but we started to hear more hawkish comments from the Fed in last six days of the month and the market has been holding back since,” said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking in Singapore.

Bonds

The premium investors demand to hold emerging-market bonds versus Treasuries increased one basis point to 335 Tuesday, from near the lowest level in more than a year, according to JPMorgan indices.

Emerging-market dollar sovereign bonds have returned more than 7 percent in the past three months and yield an average of 4.2%, according to a Bloomberg index.

South Korean bonds fell, with the yield on three-year note rising two basis points to 1.31%, and the 10-year note gaining three basis points to 1.48%. Several Bank of Korea board members said inflation is likely to trail the central bank’s projections made in July due to cheap oil and the exchange rate, according to minutes released on Tuesday from the August 11 rate decision.