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Wednesday November 30, 2016
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Mexico, which stands to lose if US President-elect Donald Trump follows up on his pledge to abandon a trade pact, witnessed the biggest currency losses. — AFP picMexico, which stands to lose if US President-elect Donald Trump follows up on his pledge to abandon a trade pact, witnessed the biggest currency losses. — AFP picLONDON, Nov 30 — The second-worst month of the year for emerging markets neared its end as stocks signalled a rebound from losses spurred by Donald Trump’s US election victory and currencies of oil exporters trimmed November declines. Eurobonds headed for their biggest retreat since the so-called taper tantrum of 2013.

The MSCI Emerging Markets Index rose for the third time in four days, building on last week’s gain. Russia’s rouble and Asian currencies advanced as Opec ministers expressed optimism that a deal to cut output could still be salvaged. Investors lowered the risk premium they demand to own developing-nation bonds for the first time in five days.

The turnaround in emerging-market assets comes after Trump’s election as the next US president sparked a rout in global markets on expectations his spending policies would spur inflation and more frequent interest-rate increases. Some investors are now betting that the pessimism may have been overdone and the Fed’s next rate move has already been factored into asset prices.

“The worst of the selloff is over,” said  Julian Mayo, who helps oversee US$2 billion (RM8.9 billion) as co-chief investment officer at Charlemagne Capital Ltd in London. “People are now reassessing what Trump’s presidency could really mean. They are taking the view that the pragmatic businessman in Trump would be a guide to what happens in the next four years and not the one who spoke in dogmatic rhetoric during the campaign.”

Stocks

The MSCI gauge rose 0.4 per cent to 861.86 at 11.04am in London. The index is trading above its 200-day moving average for a seventh successive day, suggesting that it is deriving technical support from that level. That pared its November losses to 4.8 per cent, the worst since January’s 6.5 per cent.

Currencies

The MSCI Emerging Markets Currency Index increased 0.1 per cent as it headed for a 2.7 per cent retreat this month. That’s second only to its declines in May this year when hawkish statements from Fed officials halted a rally. Turkey, where the central bank’s ability to fight inflation is impaired by political pressure for lower rates, and Mexico, which stands to lose if Trump follows up on his pledge to abandon a trade pact, witnessed the biggest currency losses.

Bonds

A Bloomberg gauge of emerging-market Eurobonds, comprising sovereign and corporate securities, was poised for a 3.3 per cent retreat in November. That’s the worst performance since June 2013 after Ben Bernanke’s indication the US central bank was getting ready to reduce its monthly bond purchases. A similar gauge of local-currency notes dropped 4.5 per cent in November, the biggest loss since September 2011.

Oil talks

Brent crude jumped 7.4 per cent after Iraqi Oil Minister Jabbar al-Luaibi said Opec ministers were unanimous in favour of an output cut, following a breakfast meeting in the city today. That helped the rouble strengthen 0.8 per cent, the best showing among 24 emerging-market peers. India’s rupee and Mexico’s peso gained at least 0.3 per cent.

Valuations

Developing-nation stock valuations may soon become attractive to some investors as a downtrend that started in September is taking the price-earnings ratio of the MSCI index closer to its three-year average. The gauge trades at 12 times the projected earnings of its members, compared with a mean of 11.3. It trades at a 25 per cent discount to the MSCI World Index of developed-market stocks, compared with 29 per cent at the start of the year.

Movers

Egypt’s EGX 30 Index advanced 2.8 per cent to extend its monthly gain to 37 per cent, a record. Stocks received a boost at the start of November when authorities freed the pound in a bid to attract foreign investors and reduce a dollar squeeze.

Saudi Arabia’s Tadawul All Share Index climbed 1.4 per cent, cementing its position as the best-performing equity benchmark in the world in dollar terms (not including Venezuela where stock gains are distorted because of a currency squeeze).

Poland’s benchmark WIG20 Index rose 1.1 per cent, while the zloty and sovereign bonds were little changed before the release of inflation data.

The Shanghai Composite Index fell 1 per cent, the most since September 26, as a technical indicator suggested the market is overheating South Africa’s rand slid 0.9 per cent. The world’s most volatile currency was the worst performer in emerging markets today.

The premium investors demand to own developing-nation sovereign bonds rather than US Treasuries narrowed two basis points to 362, according to JPMorgan Chase & Co indexes.

Outlook for 2017

“Emerging markets should do reasonably well next year,” said Mayo. “The asset class is still under-owned as most people are positioned negatively or completely out of it. Valuations are looking reasonable and earnings growth is slowly beginning to recover.” — Bloomberg

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