London / Manila: Emerging market stocks rose, driving the regional benchmark index to its longest streak of gains in five months, on speculation that China’s interest rate increases will promote lower-inflation economic growth.
The MSCI Emerging Markets Index advanced 0.8% to 1,204.60 as of 10.36am in New York, bringing its rally in the past seven days to 5.8%. The Shanghai Composite Index gained 1.1% in the first day of trading after a four-day holiday. Taiwan’s Taiex Index rose 1.7% and Turkey’s ISE National 100 Index jumped 1.4%. Colombia’s IGBC Index rallied 0.9%.
China’s rate increase cycle is coming close to an end after the People’s Bank of China on Tuesday lifted key borrowing costs for the fourth time since October, Goldman Sachs Group Inc. wrote in a note to clients. European Central Bank President Jean-Claude Trichet indicated on 3 March that policymakers may raise rates at their April meeting, which is on Thursday. The US Federal Reserve is due to end its $600 billion bond-buying programme in June.
“There’s growing confidence in the growth prospects of emerging markets since the rate increases we have seen are gradual and not abrupt,” said Fitz Aclan, who helps manage about $13 billion at Banco de Oro Unibank Inc. in Manila. “Investors are building positions since emerging markets in the long run have better fundamentals and earnings growth than developed markets,” he added.
The Taiwanese dollar appreciated 0.6% against the US currency and South Korea’s won gained 0.3%. The ruble gained as much as 0.6% to its strongest level since 2008, and the Turkish lira rose 1.1%. Japanese interest rates of nearly zero and a depreciating yen are fuelling the carry trade, in which investors borrow in currencies of countries with low rates and invest the proceeds in higher-yielding assets, according to BNP Paribas SA.
MSCI’s developing nation stock index has rallied 10% since closing at a three-week low on 17 March.
Camila Russo in New York contributed to this story