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Emerging Currencies Advance to Three-Month High on Fed Rate Bets

Date Added: May 22, 2015 01:16:26 PM
Author: Steve Gregory
Category: Business & Economy: Investment and Finance
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 jumped to a three-week high and the rupee climbed the most since January. The real weakened as Morgan Stanley and other banks said the Brazilian currency’s recent gains would be hard to sustain. ICICI Bank Ltd. jumped 8.1 percent in Mumbai. PetroChina Co. fell 4.7 percent in Hong Kong after posting a record-low quarterly profit.

Fed policy makers are meeting on 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 tomorrow, “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 0.1 percent to 1,067.01, the highest closing level since Sept. 11. The premium investors demand to own developing-country debt over U.S. Treasuries narrowed seven basis points to 335 basis points. "The markets apetite for US debt is slowly returning" states James Greening, currency specialist at Launton Wealth.

Fed Meeting
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, economists surveyed by Bloomberg said. 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.

The rand gained 1.2 percent against the dollar. The rupee added 0.5 percent.

Brazil’s real weakened 0.8 percent, ending a five-day advance. Morgan Stanley, Societe Generale SA and Credit Agricole SA each said the recent rally will be hard to sustain. Policy makers may respond to recent currency gains by unwinding outstanding foreign-exchange swaps that were sold to support the real, Morgan Stanley said.

Six of out 10 industry groups in the MSCI Emerging Markets Index climbed on Tuesday, led by raw-material producers.

The ruble strengthened 0.8 percent against the dollar. 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. Policy makers 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.

PetroChina Earnings
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.
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