BackEmerging markets post quarterly gain as China, Russia jump
Chinese stocks have rallied on bets the govt will take further steps to boost the world's second-largest economy
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London: Emerging-market stocks posted their biggest first-quarter gain since 2012 as speculation that China will do more to support economic growth boosted shares in Shanghai and a recovery in crude prices lifted energy companies.
The MSCI Emerging Markets Index advanced 1.9% to 974.57 in the past three months as central banks in Asia and Europe increased stimulus. The Shanghai composite jumped 16% in the quarter. The dollar-denominated RTS Index of Russian stocks jumped 11% as oil, the country’s top export, increased from the lowest level since 2009.
Chinese stocks have rallied on bets the government will take further steps to boost the world’s second-largest economy as it expands at the slowest pace in two decades. China has cut target interest rates twice since November and reduced banks’ reserve ratios in February. Central Bank governor Zhou Xiaochuan this week said the growth rate has tumbled “a bit" too much and that policy makers have scope to respond.
“Investors have raised bets that the Chinese government will have to take more action," Komsorn Prakobphol, an investment strategist at Tisco Financial Group Pcl, said by phone from Bangkok. “It cuts the risk of a further slowdown, which will benefit developing markets."
The Shanghai Composite Index dropped 1% from a seven-year high on Tuesday, paring the fourth straight quarterly advance. The gauge’s relative strength index climbed to 80 on Monday. Readings above 70 are a signal to some traders that shares are poised to decline.
Russia’s rebound
The RTS Index posted its first quarterly gain since the three months ended in June. Russian assets have rebounded in 2015 as a cease-fire in eastern Ukraine boosted sentiment and Brent crude prices stabilized around $55 a barrel after dropping below $47 in January. The ruble appreciated 4.4% as most other developing-nation currencies declined in the period.
A Bloomberg gauge tracking 20 emerging-market currencies posted a third straight quarterly decline, dropping 5%. Brazil’s real slid 17% and the Turkish lira fell 10% as domestic policies led to outflows from the two countries. The Federal Reserves moves toward raising interest rates also have damped demand for riskier assets.
Stocks on the emerging-market index sell for an average 11.9 times projected 12-month earnings. The MSCI World Index gained 2.3% in the first quarter and trades at a multiple of 16.6.
‘Hard quarter’
Maarten-Jan Bakkum, an emerging-markets strategist at ING Investment Management Co. in The Hague, said by e-mail that he expects the next three months to be a “hard quarter for emerging markets. Deteriorating growth momentum, negative capital flows, increasing worries about Chinese growth, high pressure on the fundamentally weak countries such as Brazil and Turkey."
In Brazil, stalled growth, record budget deficits and allegations of corruption at the state-controlled oil company Petroleo Brasileiro SA have made the real the worst-performing emerging-market currency in 2015. The Ibovespa stock gauge gained 2.3% as commodity producers including Fibria Celulose SA and Suzano Papel e Celulose SA each rallied more than 30%.
Of the 10 industry groups in the MSCI Emerging Markets Index, seven gained in the quarter, led by technology companies. A measure of energy stocks increased 2.2%, led by the Russian oil producer OAO Surgutneftegas, which surged 51% in the quarter. Bloomberg.
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