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Emerging market stocks climb on signs of US strength

Oct 06 2016 08:53
Jung Park and Lilian Karunungan

Seoul - Emerging market stocks advanced and currencies halted a two-day slide, supported by gains in South Korea’s won, as signs of strength in the world’s largest economy bolstered demand for riskier investments.

The MSCI Emerging Markets Index gained 0.4% as of 07:52, after a report showed US services companies expanded in September at the fastest pace in almost a year and crude oil closed at a three-month high on Wednesday. While the improving US outlook helped drive Asian assets higher, the increasing  probability of a Federal Reserve rate hike tempered demand.

“We have a mixture of positive and negative factors for Asian currencies today,” said Chung Sung-yoon, a currency analyst at Hyundai Futures in Seoul.

“Solid US data by itself is good news for emerging assets, but this also bolsters speculation of the Fed rate hike,” Chung said, adding that currencies will probably move within a narrow range ahead of US payrolls data scheduled for release on Friday.

MSCI’s gauge of emerging market equities headed for a two-week high and a 16% advance for this year. Eight out of 11 industry gauges in the index rose, led by energy companies. Cnooc climbed 2.8% in Hong Kong, gaining for a fourth day, after US government data showed crude stockpiles dropped for a fifth week.

South Korea’s Kospi index rose 0.6%. Samsung Electronics jumped 4.3% after the company was urged by activist investor Elliott Management to restructure its business.

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong added 1.3%, while China’s mainland markets remained shut this week. Equity gauges in Thailand, Vietnam and Malaysia gained at least 0.2%.

US figures on Wednesday showed factory and durable-goods orders accelerated in August and followed a report on Monday showing the Institute for Supply Management’s manufacturing index advanced to 51.5 from August’s contraction-level 49.4 reading.

The readings came after data showed car sales were stronger than analysts had estimated in September.

While a Fed rate increase may curb the flow of money into riskier assets, tighter policy reflects robust US growth, boosting the outlook for developing-nation companies trading with the nation.

“Equity-market-related inflows will weigh on the dollar-Asia pairs, so it’s possible that the positive stock market sentiment early in the trading day today is driving currency market movements at this current juncture,” said Julian Wee, a senior market strategist at National Australia Bank in Singapore.

Currencies

The MSCI Emerging Markets Currency Index rose 0.1% with the won climbing 0.2% to lead gains in Asia.

Malaysia’s ringgit advanced 0.1% after oil futures advanced 2.3% on Wednesday. Oil ministers from major producing nations meet next week in Istanbul for talks on how to implement last month’s decision to reduce crude output.

Malaysia is the only net exporter of oil among Asia’s major economies and derives about a fifth of government revenue from energy-related sources.

“Equities had been the main beneficiary from the oil rally,” Jingyi Pan, a market strategist in Singapore at IG, wrote in an email to clients.

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