Anxiety among emerging markets that a prospective rise in the US Federal Reserve’s lending rates – a mood that affected markets over the weekend and earlier this week – could be delayed, led to buoyancy in the affected currencies. A gauge-tracking mechanism of 20 developing countries indicated that their currencies had risen 0.6 percent in recent weeks, with the rupee at its highest since April 6 and the SA rand headed for higher levels. Peter Wilhelm
Maria Levitov
(Bloomberg) — Emerging-market currencies rallied to the highest level since February and stocks climbed as speculation that the Federal Reserve will delay raising interest rates spurred demand for riskier assets.
A gauge tracking 20 developing-country currencies rose 0.6 percent as South Africa’s rand headed for a three-week high and the rupee climbed the most since April 6. The real gained on bets Brazil’s central bank will raise interest rates Wednesday. ICICI Bank Ltd. jumped 8.1 percent in Mumbai. PetroChina Co. tumbled 4.7 percent in Hong Kong after posting its lowest quarterly profit on record. Russian bonds dropped as policymakers took steps to curb the appeal of ruble assets.
The rand gained 1.6 percent against the dollar. The rupee added 0.6 percent.
Fed policymakers were meeting Tuesday and Wednesday in Washington to review monetary policy as economists surveyed by Bloomberg project the long-awaited liftoff on its benchmark interest rate won’t happen until September. This has helped lure investors to developing countries, with U.S. exchange-traded funds that buy emerging-market stocks and bonds on pace, for the biggest month of inflows since April 2014.
Investors expect “dovish” comments by the Fed after its meeting ends Wednesday, “further underpinning the pricing out of rate-hike expectations for this year,” Michael Ganske, the head of emerging markets at Rogge Global Partners Plc in London, said by e-mail. “This is the main reason for market strength.”
The MSCI Emerging Markets Index rose 0.2 percent to 1,067.86 at 11:11 a.m. Tuesday in New York, the highest level since Sept. 11 on a closing basis. The premium investors demand to own developing-country debt over U.S. Treasuries narrowed two basis points to 340 basis points.
The Fed will assess the impact of a harsh winter and a stronger dollar, which may have helped reduce the pace of economic growth to the slowest in a year. A hiring slowdown last month is adding to caution inside the Federal Open Market Committee, said Thomas Costerg at Standard Chartered Bank in New York.
Brazil’s real strengthened 0.2 percent in its sixth straight gain. Traders projected that policymakers will lift the target lending rate Wednesday by a half-percentage point to 13.25 percent, making the currency more attractive to international investors.
Six of out 10 industry groups in the MSCI Emerging Markets Index climbed on Tuesday, led by raw-material producers.
Yields on Russian five-year bonds increased one basis point to 11.5 percent. The Bank of Russia offered $300 million at an auction of seven-day repurchase agreements on Tuesday, the least since it started the facility in October. Policymakers have sought to reduce access to cheaper cash to stop lenders from using the funds to take advantage of the world’s best carry trade.
Egyptian shares decreased 1.9 percent, while stocks in Dubai and India advanced. ICICI gained the most since September 2013. The lender’s fiscal year ended March 31 “was probably” the worst in terms of non-performing assets, and loan growth will improve this year, Chief Executive Officer Chanda Kochhar told reporters on Monday.
PetroChina, the nation’s biggest oil and gas producer, retreated from a September high after first-quarter net income plunged 82 percent on lower oil prices. Jiangxi Copper Co. dropped the most in a week after reporting a 61 percent slump in first-quarter profit.
The Hang Seng China Enterprises Index lost 0.2 percent, falling from the highest level since 2008, while the Shanghai Composite Index retreated 1.1 percent, trimming a 90 percent rally in the past six months driven by speculation of further monetary stimulus.
