Emerging Stocks Rise to 3-Month High as Bonds Gain on Fed

By Harry Suhartono & Maria Levitov - Sep 16, 2013 3:22 PM GMT+0400

Emerging-market stocks rose to a three-month high while bonds and currencies gained on betsLawrence Summers’ withdrawal as a candidate to lead the Federal Reserve eases the risk of an early halt to monetary policy.

The MSCI Emerging Markets Index climbed 1.4 percent to 1,000.31 at 11:25 a.m. in London, set for the highest since June 4. The U.S. agreed on a plan with Russia to eliminate Syria’s chemical weapons, boosting Turkey’s benchmark stock index by 3 percent. The lira led advances in developing-nation currencies and Turkey’s two-year note rate slumped to a five-week low. Gauges in Philippines, Thailand and Indonesia gained at least 2.8 percent. Russia’sMicex (INDEXCF) Index jumped 1.5 percent led by Uralkali, the world’s biggest potash producer, amid bets a conflict with Belarus will be resolved.

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Taiwan Semiconductor Manufacturing Co., the world’s largest maker of custom chips, increased 2.9 percent and contributed most to today’s rally in the MSCI emerging markets index. Photographer: Maurice Tsai/Bloomberg

6:16

Sept. 16 (Bloomberg) -- Andrew Balls, head of European portfolio management at Pacific Investment Management Co., discusses Lawrence Summers's withdrawal as a candidate for Federal Reserve chairman and expectations for a Fed led by Janet Yellen. He speaks from London with Francine Lacqua on Bloomberg Television's "The Pulse." (Source: Bloomberg)

Summers, a former Treasury secretary, would tighten Fed policy more than Janet Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll last week. More than $47 billion left global funds investing in emerging bonds and stocks from May through August on concern that reduced Fed stimulus would erode demand for riskier assets. Foreign investors added to Korean equity holdings for a 17th day, while Taiwan inflows reached a two-month high.

The Summers announcement is boosting stocks as “it reduces the chance of big changes in U.S. monetary policy in the coming period,” Maarten-Jan Bakkum, a senior emerging-market strategist in The Hague, said by e-mail. “Otherwise, the improving global cycle and good global equity markets continue to be positive for emerging markets.”

QE Rally

The MSCI emerging markets index has advanced about 106 percent since the Fed’s first round of bond-buying, known as quantitative easing, in 2008. The gauge is valued at 10.6 times projected earnings for the next 12 months, versus 13.9 times for the MSCI World Index of developed-nation shares, according to data compiled by Bloomberg. Consumer discretionary and information technology companies led gains among the 10 groups in the measure for developing-nation shares.

Turkey’s Borsa Istanbul National 100 Index (XU100) surged the most in the world on a dollar basis, led by banks. Turkish Airlines headed for the strongest level in three weeks with a rally of 4.4 percent after it said it plans to add flights to cities in Russia, Algeria, Italy and to Hakkari in Turkey.

Syria Meetings

U.S. Secretary of State John Kerry will meet with ministers from Turkey and Saudi Arabia as well as French President Francois Hollande and his counterparts from France and the U.K., as he tries to build support for the Syria plan. Both Turkey and Saudi Arabia are backers of the rebel forces seeking to topple Syrian President Bashar al-Assad, while Russia has maintained support for the regime.

Russia’s Micex headed for the highest since March 15 as Uralkali surged 5.6 percent. Russian entrepreneur Vladimir Kogan is the leading bidder for the mine operator, seeking to buy out its three main shareholders, people familiar with the situation said. The talks began after Belarus arrested Uralkali Chief Executive Officer Vladislav Baumgertner on Aug. 26, a month after he pulled out of a trading venture, according to the people. The ruble strengthened for a ninth day, appreciating 0.4 percent to 37.1637 against the dollar-euro basket.

Hungary’s forint gained 0.6 percent to 298.86 per euro as the nation’s 10-year benchmark bond yield dropped 13 basis points to 6.07 percent, the lowest since Aug. 12 on a closing basis.The benchmark stock index rose 0.5 percent, led by OTP Bank Nyrt., the nation’s biggest lender.

Rand Appreciates

The PX Index (PX) climbed 0.9 percent in Prague, while the WIG20 Index (WIG20) added 0.6 percent in Warsaw. The rand strengthened 1.6 percent in Johannesburg, the second-biggest gainer among emerging currencies tracked by Bloomberg, while the FTSE/JSE Africa All Shares Index (JALSH) was little changed. The South African Reserve Bank will probably keep its benchmark interest rate unchanged at 5 percent on Sept. 19, according to median estimate of 17 economists surveyed by Bloomberg.

In Asia, Taiwan Semiconductor Manufacturing Co. (2330), the world’s largest maker of custom chips, increased 2.9 percent, contributing the most to today’s rally in the MSCI emerging markets index. Samsung Electronics Co. (005930), the biggest smartphone maker, was the second-largest contributor with a 1.4 percent gain to the highest level since June 10.

‘Short-term Boost’

Foreign investors bought a net $454 million of South Korean stocks today and they purchased $450 million in Taiwan, according to exchange data compiled by Bloomberg.

“The stage is being set for emerging markets to do better and the Summers thing in the short-term can provide some boost,” Stefan Hofer, a Hong Kong-based economist at Bank Julius Baer & Co., which oversees $406 billion of client assets globally, said in a phone interview. Asia offers the best prospects as there is the added benefit of an improving Chinese economy, he said.

The Philippine Stock Exchange Index gained 2.8 percent while Thailand’s SET Index (SET)rallied 3.1 percent. The Hang Seng China Enterprises Index (HSCEI) increased 1.6 percent to the highest level since May. The yield on Indonesia’s 10-year debt tumbled 32 basis points to 8.03 percent while the South Korean won strengthened to the highest since February.

India’s S&P BSE Sensex index increased 0.1 percent after earlier rallying as much as 1.8 percent. The country’s inflation unexpectedly accelerated to a six-month high in August as the rupee’s slide stoked import costs, according to Commerce Ministry data. The currency rallied 1.2 percent against the dollar today, heading for the strongest level since Aug. 16 and trimming a slump this year to 14 percent.

To contact the reporters on this story: Harry Suhartono in Jakarta at hsuhartono@bloomberg.net; Maria Levitov in London at mlevitov@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net