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Emerging stocks, currencies advance on global stimulus outlook

Jul 28 2016 09:29
Maria Levitov

London - Emerging-market stocks rose toward the highest level since China’s currency devaluation last year, while volatility fell to an 11-year low on optimism that earnings are improving and central banks remain supportive of growth.

Egyptian stocks rallied the most in the world after the government said it’s nearing the final stages of talks for an International Monetary Fund loan. Turkey’s benchmark index headed for a one-week high, rising with the country’s bonds and currency on signs a political crisis is easing.

Information-technology companies got a boost from Apple’s earnings. Russian government bonds advanced for the first time in 11 days.

More than half of developing-nation companies that have reported financial results for the last quarter have beaten estimates, following similar positive momentum in the US and Europe.

Japanese Prime Minister Shinzo Abe announced plans for more than ¥28trn in economic stimulus in an effort to prop up the nation’s economy.

The Federal Reserve indicated that it will maintain a slow pace of US interest rate increases after leaving them unchanged following its two-day meeting.

"We have good figures and more stimulus," said Hertta Alava, the head of emerging markets at FIM Asset Management in Helsinki, who favours Russian equities.

"That is enough for stock markets to keep on going. We have some good results from the US and Europe and even UK gross domestic product surprised positively."

Traders now see a 45% probability of a Fed increase by the end of this year, down from 49 percent on Tuesday, futures trading indicates. Low US borrowing costs have helped prop up emerging markets as investors seek higher returns in riskier assets.

Stocks

The MSCI Emerging Markets Index climbed 0.6% to 875.85 at 3:25 p.m. in New York, heading for the highest level since August11 and tracking gains in Europe after the UK reported second-quarter growth that was quicker than estimated.

Eight of the 10 industry groups on the developing-nation gauge rose. Ten-day historical volatility on the measure dropped to as low as 3.4%, the lowest since January 2005.

The Ibovespa rose 0.4% in Sao Paulo, advancing for the first time this week. Vale SA led the Brazilian benchmark higher; jumping 3.7% after Goldman Sachs Group raised its estimates for iron-ore prices.

Turkey rebound

The benchmark EGX 30 Index in Cairo advanced 5% to the highest since August 11, after the Egyptian cabinet said the central bank governor and finance minister will finalize negotiations with an IMF delegation within a few days.

Authorities are targeting $7bn annually over three years under the program. Of that, the government plans to secure $12bn from the IMF and the rest from bilateral accords and international institutions.

The Borsa Istanbul 100 Index rose 1.9%, gaining for the third time in four days. President Recep Tayyip Erdogan is considering withdrawing cases against opposition leaders to show his solidarity among politicians in the wake of the July 15 coup attempt, his press office said.

Separately, Erdogan plans to meet Russian President Vladimir Putin to mend bilateral ties ruptured by the downing of a Russian war plane in November.

Apple suppliers Taiwan Semiconductor Manufacturing extended a record high and Hon Hai Precision Industry climbed to a one-year high after the iPhone maker reported a smaller-than-estimated decline in revenue.

Chinese stocks retreated after a report in the 21st Century Business Herald said the country’s banking regulator is considering tightening curbs on the $3.6trn market for wealth-management products. The Shanghai Composite Index closed down 1.9%.

Currencies

The MSCI Emerging Markets Currency Index rose 0.3%, extending gains after the Fed statement. The Turkish lira strengthened 0.9% against the dollar. South Africa’s rand gained 0.8%.

Malaysia’s ringgit fell 0.5%; amid lingering concern over several international probes into alleged wrongdoing at state fund 1Malaysia Development.

The yield on 10-year year rouble bonds fell four basis points to 8.65%, the first decrease since July 12. The notes are helped by the currency’s stability thanks to support from exporters, said Nikolay Minko, an analyst at Sberbank CIB, the investment-banking arm of the nation’s biggest lender.

The premium investors demand to own emerging-market sovereign debt over US Treasuries widened three basis points to 364, according to JPMorgan Chase indices.

equities  |  emerging markets  |  markets
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