Emerging markets rebound with oil as US Fed minutes calm investors

Manila/Singapore:Emerging markets snapped two days of losses as oil surged and investors returned to riskier assets after minutes of the Federal Reserve’s March meeting affirmed its gradual approach to raising interest rates.

A gauge of developing-nation stocks rebounded from a three-week low, with all 10 industry groups advancing. Equity benchmarks in Dubai, South Africa, Turkey and the Philippines rose, while Chinese shares fell for a second day. South Korea’s, won Indonesia’s rupiah and Malaysia’s ringgit led gains as a gauge of emerging currencies climbed from its lowest level this month.

“Investors are reacting positively to signs that the Fed is dovish and to the rebound in oil prices,” said Rafael Palma Gil, a Manila-based trader at Rizal Commercial Banking Corp, which manages $1.7 billion of assets. “As long as interest rates stay low, or near zero, funds will flow back into emerging markets for higher yields.”

Developing-nation assets have retreated in April, after surging in March, amid concerns that risks to a global economic recovery are increasing. While the Fed’s minutes showed broad agreement on a go-slow strategy, opinion was divided with some saying it might send the wrong signal. The dollar slipped for a second day, reaching a 17-month low against the yen, as traders assign zero chance of a Fed rate increase in April.

“Broadly, emerging-market currencies have benefited from the dollar weakness,” said Nizam Idris, the Singapore-based head of strategy for fixed income and currencies at Macquarie Bank Ltd. “The minutes out yesterday give the green light for some further appreciation.”

Currencies

The MSCI Emerging Markets Currency Index rose 0.3% at 9 a.m. in London. The gauge has declined 0.8% in April after surging 5.2% in March, the best month since records began in 1999.

The rupiah strengthened for the first time in four days, gaining 0.5%. The ringgit rose 0.4%, the most in a week as the petroleum exporter’s outlook improved and a report showed foreigners pumped the most money into the nation’s bonds in almost two years last month.

The won climbed 0.4% as global funds poured $236 million into South Korean stocks. The currencies of India, the Philippines and Thailand rose about 0.2% each, while South Africa’s rand and Russia’s ruble fell.

Bonds

Bonds of Asia’s high-yield currencies gained, pushing down the yield on India’s 10-year debt by two basis points to 7.44% and Indonesia’s by one basis point to 7.61%. However, similar Malaysian notes declined, pushing the 10-year yield up by three basis points to 3.83%.

Foreign holdings of Malaysia’s sovereign and corporate bonds rose by 5.3% to 226.6 billion ringgit ($58 billion) in March, the biggest increase since May 2014, according to central bank data released on Thursday. Overseas investors boosted ownership of government debt by 5.7% to a record 186.7 billion ringgit.

Stocks

The MSCI Emerging Markets Index rose 0.4% to 812.36, halting a two-day slide. The measure is down 2.9% in April after a 13% jump in March, the biggest since May 2009. It is trading at 11.4 times the estimated 12-month earnings of its constituents, near the highest level since June and above its five-year average of 10.5.

“Valuations are a bit expensive, so it’s better to be prudent and buy selectively rather than aggressively,” said Palma Gil from Rizal Commercial Banking.

Benchmark equities gauges in the Middle East rallied with indexes climbing at least 0.7% in Saudi Arabia, Dubai, Qatar and Abu Dhabi. Russia’s Micex Index gained 0.1% as Gazprom halted a five-day losing streak. In Asia, benchmarks in Sri Lanka, the Philippines and Vietnam rose at least 0.7%, while those in China, India, Taiwan and Indonesia fell.

The Shanghai Composite Index dropped 1.4%, and the Hang Seng China Enterprises Index of mainland companies trading in Hong Kong decreased 0.3%, its fourth straight day of losses. ZTE Corp. slumped 10.3% in Hong Kong as trading resumed following a one-month halt after the US government alleged it violated trade sanctions with Iran. Bloomberg