Emerging stocks rise as growth optimism outweighs risk
Emerging-market stock valuations rose to a 14-month high and volatility traded near a one-year low as growing confidence the world economy is on the mend outweighed a rising tide of political risks. Turkish bond yields headed for the biggest four-day increase since 2013.
The MSCI Emerging Markets Index traded at 12.3 times the projected earnings of its members, above the average of 11.2 in the past 10 years. A gauge of expected volatility in developing-nation equities fell for a third day, trading less than 0.5 point from lowest level since July 2015.
Benchmark gauges in Indonesia and Thailand rose at least 1 percent on Wednesday. Russia’s ruble strengthened, ignoring a verbal intervention from President Vladimir Putin, while the Malaysian ringgit led Asian currencies lower.
Developing-nation stocks are gaining as expectations the Federal Reserve will refrain from raising interest rates this year, and better-than-estimated economic data from the U.S., stoke risk appetite. The optimism for continued central-bank stimulus around the world helped equities post the best first-half performance since 2009 relative to advanced-nation shares after three years of underperformance.
“Emerging markets will continue to do well,” said Maarten-Jan Bakkum, a senior strategist at NN Investment Partners in The Hague, who favors Indian shares.
“The relative risk profile of emerging versus developed markets has improved due to the Brexit uncertainties and emerging-market growth momentum is clearly improving now.”
The MSCI gauge rose 0.1 percent to 869.13 at 12:15 p.m. in London, rebounding from yesterday’s 0.2 percent loss. Eight out of 10 industry subgroups climbed, led by health-care companies. A measure of developing-nation currencies added less than 0.1 percent.
The stocks gauge is showing a technical pattern that was seen only four times since the 2008 financial crisis and led to rallies on two of those occasions. The index has made a signal-line crossover on its monthly moving average convergence-divergence chart. A similar move in July 2009 heralded a 47 percent jump and in April 2014, it was followed by a 10 percent gain.
Investors dumped Turkish assets as President Recep Tayyip Erdogan’s move to deepen a purge of those associated with the last week’s failed coup highlighted the growing political risks of investing in the country. Investors sent up the cost of hedging against a default by the government in Ankara in the next five years near the levels of junk-rated countries.
JPMorgan Chase & Co. said $7.2 billion of sovereign bonds and $1.5 billion of corporate debt are at risk of forced selling if Turkey loses investment-grade status from Moody’s Investors Service, which says it is reviewing the country’s debt for a downgrade.
Turkey’s 10-year bonds fell, sending the yield up 31 basis points to 10.2 percent.
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