Market Watch | Tech Stocks Lead Emerging Markets Higher, Hungary Bonds Advance

LAGOS, Nigeria, Capital Markets in Africa: Technology companies led emerging-market stocks higher for a second day while declines in oil and metal prices dragged down energy shares. Brazil’s real and South Africa’s rand led currencies of commodity-producing nations lower while Hungarian bonds advanced after the country was raised to investment grade by Fitch Ratings.

The Taiex index led advances as Apple Inc. vendors such as Taiwan Semiconductor Manufacturing Co. surged on reports production is gearing up on its latest mobile phone. The yield on Hungarian bonds dropped the most in seven weeks after Fitch upgraded the nation’s credit. Turkish assets fell after the ruling party named a new prime minister seen as willing to transfer powers to President Recep Tayyip Erdogan. Russian dollar bonds declined as the country marketed its first Eurobond since sanctions were imposed. A gauge of energy shares retreated 1 percent as crude traded below $48 a barrel.

“Oil is going down on supply normalization,” said Michael Wang, a strategist at hedge fund Amiya Capital LLP in London, who favors Indian, Mexican and South Korean stocks. “If that continues, it could be a headwind for emerging markets in the short term.” Technology shares got a boost from speculation about demand for Apple’s iPhone, he said.

A measure of emerging-market shares has fallen for five consecutive weeks as traders have raised bets the Federal Reserve may raise U.S. rates as soon as next month. Investors pulled more than $1.9 billion from exchange-traded funds that invest in emerging markets last week, the most since January, bringing this month’s losses to almost $5 billion. The decline was the biggest since investors withdrew $2.12 billion in the period ended Jan. 15, the data show.

Federal Reserve Bank of San Francisco President John Williams said Sunday on Fox News the U.S. economy should be solid enough to merit raising rates in 2016. Odds of an interest-rate increase next month are now at 32 percent, up from 4 percent a week ago.

The MSCI Emerging Markets Index added 0.3 percent to 787.4 at 2:45 p.m. in London, extending Friday’s gain from a two-month low. The MSCI measure is down 0.8 percent this year and trades at 11.2 times its projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has dropped 1.5 percent in 2016 and is valued at a multiple of 15.7 times.

Four out of 10 industry groups in the developing-nation index gained, as a measure of technology companies rallied 1.8 percent. The Taiex jumped 2.6 percent with 
Taiwan Semiconductor and Hon Hai Precision Industry Co. the biggest contributors. Other Apple suppliers Pegatron Corp. and Catcher Technology Co. added almost 10 percent.

The Shanghai Composite advanced 0.6 percent as investors rotated to companies least exposed to China’s industrial economy, including consumer-staples producers and technology companies. Price swings in the benchmark gauge slumped to the lowest levels since March 2015 and interest in trading continued to dwindle. Equity indexes in Indonesia and South Korea gained at least 0.4 percent.

Saudi shares fell the most since January, led by declines in Jabal Omar Development Co and Saudi Basic Industries Corp., or Sabic. Bourses in Egypt and Russia retreated at least 1 percent. Oil slid below $48 a barrel as producers in Canada started the process of resuming operations after wildfires crimped output and as Iran continued to boost exports amid a glut.

The Ibovespa index declined 1.8 percent in Sao Paulo after a media report a new minister was attempting to block an investigation into government corruption.

The MSCI Emerging Markets Currency Index was little changed. The won strengthened 0.6 percent on speculation exporters are exchanging their dollars at a more competitive rate after the local currency weakened beyond 1,190 last week. 

South Africa’s rand fell 0.5 percent, while the Taiwanese dollar and Indonesia’s rupiah were up at least 0.2 percent. The real fell 1.1 percent, the most among 24 currencies tracked by Bloomberg.

The lira shed 0.4 percent after the ruling AK Party’s extraordinary congress named Binali Yildirim prime minister-designate. Yildirim, speaking at the ruling AK Party’s extraordinary congress to elect him as its new boss, said he will seek to change the constitution to transfer the center of power to the presidency instead of parliament.

Turkish bonds fell the most in emerging markets, pushing the yield on 10-year government debt up 12 basis points to 10.40 percent, the highest in more than two months.

The yield on 10-year Hungarian debt fell nine basis points to 3.35 percent on the return to investment grade by Fitch for the first time in five years. Fitch’s grade with a stable outlook puts Hungary on par with Bulgaria, Romania and Russia. Moody’s Investors Service and S&P Global Ratings both have Hungary one step short of investment grade.

The yield on Russia’s 2028 bond rose four basis points to 4.79 percent, while the yield on its 2023 bond rose four basis points to 4.02 percent, the highest in more than a month. The country will sell a 10-year benchmark Eurobond, its first since 2013, as soon as Monday, according to a person familiar with the plan.

The premium investors demand to own emerging-market debt over U.S. Treasuries rose 1 basis point to 399, according to JPMorgan Chase & Co. indexes.

Source: Bloomberg Busines News

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