Stimulus-driven emerging stocks rally gets U.S. earnings boost

Emerging-market stocks rose, putting them on course for their best month since March, on expectations planned stimulus from some of the world’s largest economies will spill over to developing nations.

Chinese and Taiwanese shares led gains in developing Asia after U.S. companies reported better-than-expected earnings overnight, suggesting a resilient American economy can anchor global growth. The Jakarta Composite Index advanced to a May 2015 high before an expected interest-rate cut. Malaysia’s ringgit fell for a fourth day following a report that U.S. prosecutors are seeking to seize more than $1 billion of assets allegedly misappropriated from state fund 1Malaysia Development Bhd.

Emerging-market stocks have benefited from expectations for additional stimulus and looser monetary policy to cushion the global economy following Britain’s vote last month to leave the European Union. Japan’s government is considering a 20 trillion yen ($187 billion) package, Kyodo News reported, and the European Central Bank reviews policy later on Thursday. Around four in five of the S&P 500 Index companies that have reported results so far have beat analysts’ profit estimates.

“There’s a growing outlook that global interest rates will be lower for longer, fueling demand for riskier assets at least in the next six months,” said Nescyn Presinede, a trader at Rizal Commercial Banking Corp. in Manila. “A number of developed economies are signaling more stimulus. Positive U.S. corporate earnings gave an added lift.”

Stocks

The MSCI Emerging Markets Index rose 0.2 percent to 872.22 as of 2:31 p.m. in Hong Kong, taking its gain this month to 4.6 percent. Telecommunications and information-technology shares were the best performers with China Mobile Ltd. providing the biggest boost as it advanced 3.6 percent in Hong Kong.

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong advanced 0.8 percent and the Shanghai Composite Index climbed 0.5 percent. Taiwan’s Taiex gauge was up 0.5 percent, while Malaysia’s benchmark gauge fell 0.5 percent.

The Jakarta Composite Index climbed 0.3 percent. Sixteen of 26 analysts surveyed by Bloomberg see Bank Indonesia cutting its reference rate to 6.25 percent, with the rest forecasting it’ll be held at 6.5 percent.

Currencies, Bonds

The MSCI Emerging Markets Currency Index was little changed. The ringgit fell 0.6 percent and is down 2.6 percent this week in the worst developing-nation performance. A Bloomberg gauge of the dollar against major peers fell 0.1 percent after rising 0.7 percent in the last three days.

“ A firmer dollar, and a weakening of the yen on news of a much larger stimulus package from the Japanese government is behind the ringgit’s weakness, said  Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore. 1MDB “may also be affecting ringgit sentiment somewhat,” he said.

Turkey’s lira rose 0.9 percent after President Recep Tayyip Erdogan imposed a three-month state of emergency as he pursues those responsible for last week’s failed military coup. The nation’s currency is down 6 percent since the attempted putsch on Friday, while the benchmark share gauge has lost almost 10 percent this week. Poland’s zloty strengthened 0.4 percent, as did South Korea’s won and the South African rand.

In sovereign bond markets, the yield on China’s 10-year notes fell one basis point to 2.79 percent. That on South Korea’s similar-maturity paper rose two basis points to 1.44 percent.

 ~Bloomberg