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London - Emerging-market stocks and currencies advanced, paring their worst weekly loss since mid-February, as Brent crude surged above $40 a barrel, boosting energy stocks and currencies from Russia to South Africa.
China’s Cnooc and Russia’s Lukoil PJSC led a gauge of energy shares higher for a third day as oil headed for its biggest weekly advance since the beginning of March before a meeting between suppliers to discuss freezing production.
The rand and the Russian rouble surged the most versus the dollar among major global currencies, helping to pare a weekly slide in emerging-market currencies. Developing-country bond yields narrowed.
Oil’s advance helped boost demand for riskier assets in a week where concerns over global growth are causing investors to question the strength of a recent rally.
International Monetary Fund (IMF) Managing Director Christine Lagarde said on Thursday the lender is likely to lower its outlook for world growth and minutes of the Federal Reserve’s March meeting released a day earlier showcased heightened global risks. The World Trade Organization slashed its trade growth forecast for 2016, citing a steep decline in China’s economy.
“The bounce in oil today is helping risk assets,” said Michael Wang, a strategist at hedge fund Amiya Capital LLP in London, who favors shares in India, Mexico and Poland. “Sentiment is still fragile. Clearly the lower dollar is helping commodities and EM but it’s hurting Europe and Japan.”
Brent crude jumped 3.4% to $40.78 a barrel, extending a weekly advance to 5.4% as US crude output continued to drop. Major producers from Saudi Arabia to Russia will meet in Doha on April 17 to discuss freezing output in a bid to stabilise prices.
The MSCI Emerging Markets Index rose 0.3% by 13:30, reducing a loss for the week to 1.7%. The MSCI Emerging Markets Currency Index climbed 0.1% and is heading for a weekly loss of 0.5%.
Stocks
Nine out of 10 industry groups advanced, led by a gauge of energy shares, which advanced 1.1%. The emerging-markets index has climbed 2.2% this year and trades at 11.6 times estimated 12-month earnings, compared with 15.7 times for the MSCI World Index, which has retreated 2.3% this year.
Lukoil, Russia’s second-biggest oil producer, advanced 1.6% to the highest since March 21 as Russian stocks climbed 0.5%. Equity indices across emerging Europe advanced, with Czech stocks rallying more than 1%.
The Shanghai Composite Index dropped 0.8% and was poised for its first weekly loss in a month. The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong advanced 0.6%, paring a five-day loss after entering a bull market last week. Equity gauges in Indonesia and Malaysia fell more than 0.3%.
Currencies
The ruble jumped 1.1%, leading gains in emerging-market currencies, and extending a weekly advance to 0.4%. The rand advanced 0.9% heading for a decline of 2.8% in the past five day as the currency has been buffeted by impeachment proceedings against the country’s president and concerns about global growth hurting riskier assets.
Mexico’s peso strengthened 0.5%, while China’s yuan, Hungary’s forint, South Korea’s won and Taiwan’s dollar weakened. Developing-nation currencies retreated this week as investors took profits from the biggest rally in the asset class last month since records began in 1999.
“Now may not be the best time to go jumping into EM currencies,” said Manpreet Gill, the Singapore-based head of fixed income, currency and commodities strategy at Standard Chartered. “The next few weeks will be more of a breather and we’re not too keen to chase the rally. We need more evidence that the bad economic news have peaked.”
Bonds
Russian local-currency bonds gained, with the yield on the government’s five-year notes retreating six basis points to 9.35%, paring a weekly advance to 10 basis points. Similar-maturity Polish debt climbed for the first day this week, with the yield falling 2 basis points to 2.26%.
The premium investors demand to own emerging-market debt over US Treasuries narrowed two basis points on Friday to 416, according to JPMorgan indices. Domestic bonds of developing nations have lost 0.2% this week, the most since early December, a JPMorgan index shows. That outpaced the 0.05% drop on their dollar debt.
