Emerging market stocks snapped five days of declines yesterday as stronger manufacturing data from Turkey, Hungary and China eclipsed a partial US government shutdown.
The MSCI emerging markets index had climbed 0.5 percent to 992.73 by 1.41pm in London after a week-long decline had dragged valuations to a three-week low.
The Chinese purchasing managers’ index (PMI) showed a rise for September on the same day that the US government began a partial shutdown for the first time in 17 years after Congress failed to break a budget deadlock.
“The market is not impressed by the developments in the US, but what has been positive was that the official PMI in China did not disappoint much,” said Maarten-Jan Bakkum, a senior emerging markets strategist at ING Investment Management in The Hague. “The doubts about the Chinese recovery caused by some recent data might not be justified.”
China’s PMI came in at 51.1 for September, up from 51 in August but below the median estimate of 51.6.
The MSCI emerging markets index surged 5 percent in the third quarter, its biggest increase this year, boosted by the US Federal Reserve’s decision to refrain from tapering monetary stimulus and overshadowing concern over an economic slowdown in China. The 21 countries in the developing nations gauge send about 17 percent of their exports to the US, data compiled by the World Trade Organisation show.
“Whatever weakens the US economy would be positive for emerging markets as it would tie the Fed’s hands,” said Inanc Sozer, the economic research manager at Odea Bank in Istanbul.
A decrease of 1.3 percent in the emerging market index last week dragged valuations to 10.4 times projected 12-month earnings on September 27. This compares with a multiple of 14 for the MSCI world index. The emerging markets index is down 5.9 percent this year, versus a 15 percent gain in the developed nations index.
“A window of opportunity to buy at more attractive prices opened up as a consequence of the market’s recent decline,” Jonathan Ravelas, the chief market strategist at BDO Unibank, said in Manila.
“Some investors are betting the consequences of a US shutdown will not be as significant as others fear.”
The shutdown is a buying opportunity, if history is a guide. The Standard & Poor’s 500 index rose 11 percent on average in the 12 months following a government shutdown, according to data compiled by Bloomberg on the 12 instances since 1976. That compares with an average return of 9 percent over 12 months. In all the cases, the US equity benchmark was higher by the end of the next two years.
Data released yesterday showed the Czech Republic’s budget deficit narrowed and Indonesia posted its first trade surplus since March 2012. Turkish manufacturers reported the fastest pick-up this year and Hungary’s PMI also advanced.
On Monday, India said its current account deficit widened less than predicted in the second quarter. – Bloomberg