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Bangkok - Emerging-market stocks and currencies advanced for a fourth day after the Federal Reserve refrained from raising interest rates, bolstering demand for higher-yielding assets.
The Philippines and South Korea led gains in equity markets as the US central bank reduced forecasts for how much it plans to raise its benchmark next year to two times from an earlier prediction of three. South Korea’s won surged the most in three months and the Malaysian ringgit strengthened as a weaker dollar and a jump in crude oil supported developing-nation currencies.
“The delay in US interest-rate increase will significantly benefit the emerging markets because this should encourage more fund inflows into those assets,” said Komsorn Prakobphol, a senior investment strategist in Bangkok at Tisco Financial, whose mutual-fund unit manages about $5bn.
“Global liquidity is so high that most investors are searching for better returns, which are much higher in emerging markets than developed markets.”
Stocks
The MSCI Emerging Markets Index of shares rose 1% to 914.95 as of 07:49 after increasing 2.3% in the previous three days. The gauge earlier climbed to 916.53, the highest level since September 9. All 11 industry groups advanced, led by industrial and health-care companies.
Benchmark stock indexes climbed 1.2% in the Philippines, 1.1% in South Korea and 1% in Pakistan.
“We still advise our clients to be very cautious for taking aggressive positions in equities,” Tisco’s Komsorn said. “The volatility is very high. They should hold more cash and wait for the equity prices to come down more before buying them.”
The Fed left its main interest rate unchanged after a two-day meeting ended in Washington on Wednesday, while projecting an increase was still likely by year-end. The central bank’s so-called “dot plot”, which it uses to signal its outlook for borrowing costs, showed policy makers see two moves next year, down from their projection of three in June.
The decisions by the Fed and Bank of Japan, which maintained its stimulus policy on Wednesday while shifting its focus to targeting bond yields, have helped revive a rally in emerging markets.
The securities have outperformed developed-nation peers this year as accommodation by major central banks set off a hunt for higher-yielding assets.
Currencies
The MSCI Emerging Markets Currency Index gained 0.6%, extending this year’s advance to 6.5%, as the dollar weakened after the Fed Open Market Committee trimmed its forecasts for future rate increases.
“The dollar tanked after the FOMC,” said Wu Mingze, a foreign-exchange trader in Singapore at INTL FCStone, a Nasdaq-listed global payments-service provider. “We will need to wait and see if this is merely a technical pullback.”
The won jumped 1.6%, the most since June 7, while the ringgit rose 0.7%. Taiwan’s dollar appreciated 0.1% after reaching the strongest level since July 2015.
Central banks in Indonesia and the Philippines are both scheduled to hand down policy decisions on Thursday. While Bank Indonesia is set to cut its policy rate, according to most economists surveyed by Bloomberg, its Philippine counterpart is forecast to stay on hold as it weighs possible future tightening to guard against inflation.
