Emerging stocks head for longest rally in 16 months
The MSCI Emerging Markets Index rose for a ninth day toward the highest level since July 2015 as Indonesia and Malaysia led gains in Asia.
Qatar shares jumped the most in two months after FTSE said it will ease liquidity tests when it assesses which stocks will be included into its developing markets index. Indian, Thai and Taiwanese stocks slid amid elevated valuations.
South Korea’s won led a measure of currencies to a 13-month high, while Malaysia’s ringgit and South Africa’s rand strengthened.
Developing-nation shares have soared 33 per cent from a January low, driving valuations to the highest level in 15 months. A commodities rebound and bets that some of the largest economies will take measures to support growth with stimulus and lower borrowing costs have spurred demand for higher-yielding assets. Overseas investors have ploughed almost US$6 billion (RM24 billion) into equities this month in India, Indonesia, the Philippines, South Korea, Taiwan and Thailand, data compiled by Bloomberg show.
“Foreign funds are still flowing into emerging markets because of surplus liquidity in the global financial system,” Koraphat Vorachet, an investment strategist at Capital Nomura Securities Pcl, said by phone from Bangkok. “Still, valuations are probably quite stretched after the recent rally. Investors should be ready to sell some of their investments to lock in profit.”
Investors have trimmed bets that the Federal Reserve will raise interest rates in 2016 after stagnant retail sales data last week revived doubts about the strength of the US recovery.
Stocks
The MSCI Emerging Markets Index climbed 0.2 per cent to 917.47 at 3:56pm in Hong Kong, bringing its nine-day gain to 5.7 per cent.
As stocks climb, a technical indicator is signalling the rally may be overdone. The MSCI gauge’s 14-day relative strength index was at 77 today, the highest since April 2015 and the seventh day above the 70 level that some technical analysts say indicates the measure is set to reverse direction. Six out of 10 industry groups in the developing-nations equity index rose, led by technology and industrial companies.
The Jakarta Composite Index climbed 0.8 per cent, while the FTSE Bursa Malaysia KLCI Index gained to the highest level since April 25. Taiwan’s Taiex index declined 0.4 per cent, with valuations near a September 2014 high.
Hong Kong’s Hang Seng China Enterprises Index added 0.2 per cent, its ninth day of gains, while the Shanghai Composite Index retreated 0.5 per cent, falling from the highest close since January 8. Chinese shares — whether listed at home, in Hong Kong or in the US — are among the world’s best performers in August as fears of a hard landing in the world’s second-largest economy recedes and the yuan stabilises.
Indian equities halted a two-day gain as Infosys Ltd. declined after it lost a technology contract and concern grew that accelerating inflation will limit the central bank’s ability to lower borrowing costs. South Korean shares resumed trading after a holiday, sliding for the first time in eight days.
Currencies
The MSCI Emerging Markets Currency Index added 0.2 per cent and has risen 1.9 per cent this month. The won appreciated 0.9 per cent, its first increase in three days, while Malaysia’s ringgit and the Philippine peso advanced 0.5 per cent. South Africa’s rand strengthened for a second day.
South Korea’s 10-year bonds rose, with the yield dropping one basis point to 1.4 per cent, while Thailand’s was up one basis point at 2.06 per cent.
“We expect Asian currencies to remain strong although the scope for upside is not homogeneous,” said Julian Wee, a senior market strategist at National Australia Bank Ltd. in Singapore. “The Chinese yuan has more upside potential, along with the Indian rupee as appetite for yield remains high. The Malaysian ringgit and the Indonesian rupiah could also advance a little given the strength in the price of oil.” — Bloomberg
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