(Bloomberg) — Its been at least 18 years sinceemerging- market currencieshad it this good as the Federal Reserve adopted a gradual approach to its rate-increase cycle, fueling optimism capital inflows can be sustained.
A gauge of 20 currencies gained for a fourth day after Fed Chair Janet Yellen saidpolicy makers would act cautiously as they look to raise rates. Stocks rallied, sending shares in Shanghai up the most in a month, while South African equities rebounded from a two-week low and Russia snapped the longest run of losses since 2011. The premium investors demand to hold emerging-market debt dropped from the highest since March 16.
Yellens comments were pretty aggressive and make it clear that rate hike expectations might as well be scratched out for this year, saidNathan Griffiths, a senior emerging-market equities manager who helps oversee $1.1 billion at NN Investment Partners in The Hague. This is the perfect backdrop for emerging markets to continue the rally because positioning remains geared to a rising dollar, he said.
Brazil, South Africa, Russia and Turkey will probably benefit most from a weaker dollar, Griffiths said.
Developing-nation assets have advanced this month after the Fed at its March meeting reigned in forecasts for higher rates amid concern over turmoil in global markets. While Yellen reasserted that stance on Wednesday, hawkish comments from Fed officials last week had spurred traders to raise bets for rate increases this year. Stocks and currencies of commodity producers also got a boost from gains in prices for crude oil and metals.
Currencies
The gauge of 20 developing-nation currencies rose 0.4 percent, the most in since March 17, as of 11:18 a.m. in London. That extended the advance in March to 5.3 percent,heading for the best month since 1998.
Malaysias ringgit, the South Korean won topped the daily moves on Wednesday, strengthening 1.6 percent and 1.1 percent each.
EPFR Global data showed $2.9 billion flowed into stocks in developing countries in the week to March 23 alone, the most since July. Thats supported strength in exchange rates, with all of the 24 associated currencies appreciating in March.
The ruble strengthened 0.9 percent on Wednesday, taking its gain in March to 11 percent, the most among emerging markets,as Brent crude rallied 10 percent to just shy of $40 a barrel,up from a 12-year low of about $27 reached in January and helping a Bloomberg index of raw materials to its first monthly gain in nine. Brazils real, the second-best performer, is up 10 percent this month.
Stocks
The MSCI Emerging Markets Index rose 2.1 percent, the steepest increase in almost two weeks. The gauge climbed 12 percent in March, the most since October 2011. All 10 industry groups rallied on Wednesday, led by materials and health-care stocks.
TheShanghai Composite Index gained 2.8 percent on Wednesday, the biggest increase since March 2, as companies including Bank of Communications Co. and China Petroleum & Chemical Corp. reported better-than-expected earnings. The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong added 2.9 percent.
Benchmark gauges in Abu Dhabi, Dubai, India, Thailand, Turkey and South Africa climbed at least 1.3 percent. Russias Micex rose for the first time in eight days, advancing 0.6 percent.
Bonds
Government bonds rose. The yield onSouth Koreas 10-year notes dropped three basis points to a two-month low of 1.77 percent, exchange prices show. The rate on Russias five-year note fell eight basis points to 9.25 percent and Turkeys two- year yield slid 15 basis points to 9.97 percent.
The extra yield investors for emerging market debt over Treasuries fell one basis point to 415, according to JPMorgan Chase & Co. indexes.
