Emerging Markets Battered China hits emerging stocks as Mobius sees legs in rally

• Emerging Markets
  

Battered China hits emerging stocks as Mobius sees legs in rally

By Bloomberg / Bloomberg   | April 22, 2016 : 5:36 PM MYT 


JAKARTA/MANILA (April 22): As emerging-market stocks and currencies pared the week’s advance amid mixed signals coming out of China over the health of the world’s second-largest economy, Mark Mobius says the rally has further to go.
While this month’s gains in developing-nation shares and exchange rates are a fraction of what they were in March, Mobius cited the number of investors that are underweight the assets and “cheap” valuations for his prediction. Chinese manufacturing and exports data have shown improvement, but a resurgence in lending and an increase in defaults are causing uncertainty. The Shanghai Composite Index posted its worst week since a January rout shaved almost US$6 trillion off global stocks.
“We have seen weakness in emerging markets in the past three years,” the executive chairman of Templeton Emerging Markets Group said in an interview in Manila. “On the way up, we are going to see pullbacks. It will be a big battle to create this foundation, but we are definitely on the move up.”
Equities tracked the U.S. lower on Friday after the Standard & Poor’s 500 Index fell from a four-month high amid a mix of corporate earnings. Interest-rate futures show less than a 50% chance the Federal Reserve will add to its monetary tightening at its meetings in April, June and July, although the odds have risen from a week ago. The outlook for a slower pace of rate increases has supported demand for emerging-market assets in the past few months.
Developing nations have been a beneficiary of a pickup in commodities. Brent crude held near US$45 a barrel, after climbing through US$46 on Thursday for the first time since November. The price is up 4.8% this week and 14% in April. The Bloomberg Commodity Index rose 3.9% from April 15, the biggest increase since 2012, and is headed for a 6% advance this month.
Stocks
The MSCI Emerging Markets Index of shares fell 0.7% to 847.35 as of 8:58 a.m. in London. That trimmed this week’s gain to 0.1%, compared with a 3.7% rally through April 15. The gauge is up 1.3% in April, slowing from a 13% advance in March.
All 10 industry groups retreated on Friday, led by a 1% loss in industrials and a 0.9% drop in consumer discretionary stocks. The measure is trading at 12 times projected 12-month earnings, compared with 16 for the MSCI World Index of shares. The gauges have climbed 6.7% and 1.5% respectively, this year.
The Shanghai Composite dropped as much as 0.9% before reversing the loss to close 0.2% higher. It was down 3.9% for the week, the steepest slide since a more than 6% plunge in the last week of January. Of the more than 1,000 members, in excess of 250 stocks fell on Friday. The Hang Seng China Enterprises Index of Chinese shares traded in Hong Kong declined 1.4%, taking the week’s loss to 1%.
The FTSE/JSE Africa Top40 dropped 0.8% and was 0.6% lower on the week. The Budapest Stock Exchange Index lost 0.4% and slid 0.9% from a week earlier.
“Investor sentiment remains weak as there are still some uncertainties over China,” said Indra Mawira, an investment manager who helps oversee 12 trillion rupiah (US$912 million) of assets at Panin Asset Management in Jakarta. “Emerging markets gained strongly and some investors might decide to lock-in gains and wait for more signs from the first-quarter numbers to see if the rally can be justified.”
Currencies
The MSCI Emerging Markets Currency Index fell 0.3%, cutting its weekly gain to 0.3%. It has climbed 0.2% in April, slowing from March’s 5.2% increase. South Korea’s won, the Philippine peso and the Malaysian ringgit led Friday’s losses. Still, the won rounded out a fourth weekly gain.
The Thai baht erased its weekly gain on Friday, as it depreciated 0.2%. The central bank has helped limit volatility in the currency, which has strengthened in line with other Asian currencies because of capital inflows, Finance Minister Apisak Tantivorawong told reporters.
Across developing countries this week, the Colombian peso, South African rand and Turkish lira led gains. The Argentine and Philippine pesos dropped the most along with Poland’s zloty.