Most Emerging Stocks Gain as Growth Outlook Outweighs Oil Slump

(Bloomberg) -- Most emerging-market stocks advanced as signs that the economic fallout from Britain’s vote to leave the European Union may be contained, outweighing a drop in commodity prices.

The MSCI Emerging Markets Index ended the session little changed at 869.10, with more than four stocks rising for each three that fell. A gauge of developing-nation exchange rates slipped 0.2 percent as declines in crude-producing countries including Colombia and Mexico outweighed gains in eastern Europe. The Turkish lira and the country’s equity benchmark rebounded from last week’s selloff.

Emerging-market stocks are on course for their best month since March on speculation central banks in Europe and Japan will add stimulus to support their economies in the wake of the U.K. vote last month to leave the European Union. Data released on Monday showed business confidence in Germany proved more resilient than economists predicted in July, improving prospects for trade to remain intact in developing Europe. The benchmark earlier fell as much as 0.3 percent as energy and raw-material companies retreated.

“Investors’ bias is to be long emerging markets,” said Regis Chatellier, a strategist at Societe Generale SA in London, who favors Argentinian and Indonesian sovereign international bonds. “During the first half of the year there was a lot of global risk: potential Fed hikes, Brexit, oil repricing. Now, global themes are a bit subdued and that’s why there is not much volatility.”

Price Swings Narrow

Historical five-day volatility in the developing-nation equity benchmark, a measure of price swings during the period, fell to 3.5 percent, near a one-year low touched in early June.

Investors are also awaiting the results of central bank meetings this week in the U.S. and Japan. Odds the Federal Reserve will raise interest rates in 2016 have climbed to 48 percent from 12 percent at the end of June, damping appetite for some riskier assets. Traders added more than $2 billion into exchange-traded funds that buy emerging-market stocks and bonds last week, adding to record gains in the previous period and bringing the current winning streak to more than $10 billion.

Turkey Rebound

The lira strengthened 1 percent and the Borsa Istanbul 100 Index rallied 3.4 percent Monday, the most among 94 primary equity gauges tracked by Bloomberg. Turkish assets advanced as Prime Minister Binali Yildirim said the government plans to set up a multibillion-dollar fund to support economic growth. The nation’s markets were jolted last week after a failed coup battered investor confidence.

Stock indexes in Hungary, Poland and Russia gained 0.3 percent or more. India’s equity benchmark jumped 1.1 percent, while stocks in Malaysia gained 0.7 percent.

The Ibovespa retreated 0.2 percent after a two-day rally that pushed Brazilian stocks to their highest valuations in almost three months. The IPC Index fell 0.9 percent in Mexico City.

The MSCI emerging markets equity gauge trades at 12.1 times its projected 12-month earnings after a 9.4 percent advance this year. The MSCI World Index has gained 2.5 percent in 2016 and is valued at a multiple of 16.3.

Colombia’s peso weakened the most among developing-nation currencies, dropping 2.1 percent as oil prices fell to the lowest in more than two months. Mexico’s peso retreated 1.2 percent. Brazil’s real slid 1 percent.

The yuan gained for a fourth day versus a basket of currencies, the longest run since May, after Deputy Governor Chen Yulu said on Sunday the central bank will seek to keep the exchange rate stable.

The premium investors demand to own emerging-market debt over U.S. Treasuries was unchanged at 354 basis points, according to JP Morgan Chase & Co. indexes.

To contact Bloomberg News staff for this story: Sunny Oh in New York at hoh21@bloomberg.net, Maria Levitov in London at mlevitov@bloomberg.net. To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Richard Richtmyer

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