By Ian Sayson & Maria Levitov - Sep 19, 2013 2:58 PM GMT+0400
Turkish shares surged the most in more than three years and Malaysia’s ringgit posted the biggest advance since 1998 as the Federal Reserve’s surprise move to keep stimulus intact triggered a rally across emerging markets.
The MSCI Emerging Markets Index climbed 2.3 percent to 1,023.98 at 11:53 a.m. in London, poised for the highest close since May 28. Equity gauges in Turkey (XU100) and Russia climbed more than 20 percent from their lows this year. The ringgit, Thailand’s baht and the Indian rupeestrengthened more than 2 percent against the dollar as the ruble reached a three-month high. Turkish two-year yields tumbled 75 basis points.
Sept. 19 (Bloomberg) -- Mark Konyn, Hong Kong-based chief executive officer of Cathay Conning Asset Management Ltd., talks about Federal Reserve monetary policy, its potential impact on Asian emerging markets, and his investment strategy. He also discusses the economic outlook for India and China with John Dawson and Angie Lau on Bloomberg Television's "Asia Edge." (Source: Bloomberg)
Sept. 18 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke speaks about the central bank's decision to maintain the $85 billion pace of monthly bond purchases. He speaks at a news conference in Washington. (This is an excerpt. Source: Bloomberg)
Sept. 18 (Bloomberg) -- The Federal Reserve unexpectedly refrained from reducing the $85 billion pace of monthly bond buying, saying it needs to see more evidence of improvement in the economy. The Federal Open Market Committee released its statement at the conclusion of a two-day meeting in Washington. Peter Cook reports on Bloomberg Television's "Money Moves." (Source: Bloomberg)
Fed policy makers said yesterday they want more evidence of lasting improvement in the economy before paring the central bank’s $85 billion monthly bond-buying program, surprising economists surveyed by Bloomberg whose median estimate was for a $5 billion reduction. The MSCI gauge has rallied 111 percent since the first round of Fed stimulus in 2008.
“The Fed move was a shocker,” Joseph Dayan, head of markets at BCS Financial Group in London, said by e-mail. “The Fed just delivered a mini bailout to the likes of Turkey andIndia, which were dealing with rapid currency devaluation.”
Fed Chairman Ben S. Bernanke said there is no fixed schedule for tapering and it could still start this year should data confirm the central bank’s “basic outlook.” The U.S. will report jobless claims and home sales figures today.
Bond Sales
All 10 industry groups in MSCI’s emerging-markets index rose, led by financial and health care companies. Turkiye Garanti Bankasi AS (GARAN), Turkey’s largest bank by market value, and PT Bank Negara Indonesia, jumped at least 9.5 percent. OAO Sberbank, Russia’s biggest lender, added 3.3 percent to the highest since May 28 on a closing basis.
Garanti said today may boost the size of a bond sale to 900 million liras ($461 million) from 650 million liras, while Turkey’s Treasury said it plans to hold investor meetings starting Sept. 23 for a possible sale of Islamic bonds. Armenia hired banks for a seven-year dollar bond sale today, while issuers including the Eurasian Development Bank and the European Investment Bank were also poised to sell, according to people familiar with each of the offerings, who asked not to be identified because the information is private.
Turkey’s 16-member banks index jumped 10 percent, the most since November 2008. The benchmark Borsa Istanbul National 100 Index has increased 22 percent from a 2013 low on Aug. 28, while Russia’s dollar-denominated RTS Index added 4.1 percent in Moscow, up 21 percent from a June 24 trough. India’s S&P BSE Sensex Index jumped 3.4 percent, set for the highest level since November 2010.
Fed Effect
The rally today trimmed this year’s drop in the MSCI developing-nation gauge’s to 3 percent, compared with an 18 percent jump in the MSCI World Index of developed-nation shares. The developing-country gauge is valued at 10.8 times projected earnings for the next 12 months, versus 14 times for the MSCI World, data compiled by Bloomberg show.
Emerging-market assets suffered after Bernanke first signaled in May that the Fed will start scaling back its quantitative easing program. The MSCI gauge, which includes more than 800 stocks, declined 11 percent between the start of May and the end of August.
“After this euphoria, expect volatility to pick up again as markets are likely to go back to watching U.S. data to determine when the Fed will start reducing stimulus,” Allan Yu, the chief investment officer of Metropolitan Bank & Trust Co., which manages $8.7 billion, said in Manila.
Ringgit Jumps
Riskier assets in countries such as Malaysia, Thailand, Philippines and South Korea should post “reasonable returns” over the next couple of months after the Fed’s unexpected decision, according to John Woods, a Hong Kong-based Asia strategist at Citigroup Inc.’s private bank.
The ringgit led a surge in Asian currencies, climbing the most since the 1998 regional financial crisis. The rupee jumped 2.6 percent to a one-month high and the baht strengthened 2.3 percent.
The Philippine Stock Exchange Index and Thailand’s SET Index advanced more than 2.8 percent, while the Jakarta Composite Index jumped 4.7 percent as trading volumes surged 119 percent above the 30-day average. The premium investors demand to own emerging-market debt over U.S. Treasuries fell eight basis points, or 0.08 percentage point, to 325, according to JPMorgan Chase & Co. indexes.
“Only if the U.S. economy will turn out to be so weak that the Fed can postpone the normalization of monetary policy for longer than a few months, only in that case I see those risk markets continuing their rally,” Maarten-Jan Bakkum, a senior emerging-markets strategist at ING Investment Management in The Hague, said by e-mail. “This is not our base-case scenario.”
To contact the reporters on this story: Ian Sayson in Manila at isayson@bloomberg.net; Maria Levitov in London at mlevitov@bloomberg.net
To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net
