Shanghai - Emerging-market stocks headed for the first weekly advance in more than a month as investors searched for bargains amid speculation China has resumed its intervention in the market.
South Africa’s rand led currencies to the longest streak of weekly losses since the Asian financial crisis in 1997. The rout that deepened after China’s surprise decision August 11 to devalue the yuan is slowing as investors said funds linked to the government in Beijing are buying equities.
Policy makers want to stabilise shares before President Xi Jingping appears at a military parade next week to celebrate the 70th anniversary of the World War II victory over Japan, people familiar with the matter said. A 28 percent decline in emerging-market stocks from an April peak pushed valuations to the lowest level since January 2014 before a mini rebound took effect this week.
Still, most investors and analysts are betting on gains fizzling out, with attention focused on a potential interest-rate increase by the Federal Reserve.
The Chinese rally will be short-lived because state intervention is too costly to continue and valuations are still not justified given the slowing economy, according to Bank of America. “China has its problems, lots of them, but they are by now priced into the market and they are well known to the investors,” Leopold Quell, a co-fund manager at Raiffeisen Capital Management in Vienna, said by e-mail. Stocks are “at attractive levels” after the selloff, he said.
Currency losses
A gauge of 20 emerging-market currencies headed for the 10th weekly loss. As the Federal Reserve moves toward its first rate increase in almost a decade, concern has grown that the dollar’s strength will drain capital away from developing-nation assets.
The yuan depreciation also spurred countries such as Kazakhstan and Vietnam to cheapen their managed currencies to regain export competitiveness. China’s economic growth is projected to slow by half a percentage point to 6.9 percent this year.
Even after losing more than a third of their value since June 12, the nation’s shares trade at 51 times reported earnings, according to data compiled by Bloomberg. That’s the most among the 10 largest markets and more than twice the multiple for the Standard & Poor’s 500 Index.
The MSCI Emerging Markets Index rose 0.6 percent to 817.84 at 12:08 pm in London, following a 3.3 percent gain Thursday. The gauge is set for a weekly advance of 0.7 percent, the first increase since July 17. Even so, the benchmark is heading for the worst monthly loss since May 2012 as China, Colombia and Peru sustain some of the biggest slumps following the yuan devaluation.
Intervention debate
The Shanghai Composite climbed, taking its two-day increase to more than 10 percent. The latest speculation about market intervention by China follows a halt to an unprecedented government effort to prop up equity prices that had prompted a debate among officials over the merits of such a programme.
“We can see the Chinese government’s intervention to support equities market has yielded results,” Jeffrosenberg Tan, a portfolio manager at PT Sinarmas Asset Management, said by phone. “We are still cautiously optimistic.”
The MSCI developing-nations measure is still down 7.9 percent since the yuan devaluation, with the price-to-earnings ratio for the next 12 months at 10.7 times, a 30 percent discount to the MSCI World Index of advanced-nation stocks. The yuan climbed the most since March after the central bank boosted the currency’s reference rate in the biggest increase in five months.
The ruble weakened after surging 4.2 percent on Thursday. Brent crude slid 0.9 percent. Malaysia’s ringgit headed for a 10th weekly decline, its longest losing streak since 2013, as thousands of protesters prepared for a weekend march to demand Prime Minister Najib Razak’s resignation.
BLOOMBERG