Emerging Stocks Rise Amid Clinton Poll Lead; Mexican Peso Surges

2016-11-07 09:33:17

By Narayanan Somasundaram and Maria Levitov, Bloomberg News

Emerging-market stocks gained the most in almost three weeks and Mexico’s peso and Brazil’s real led an an advance in currencies on optimism a victory for Hillary Clinton in the U.S. presidential election will support risk appetite.

The peso was set for its biggest jump since September as polls showed Clinton with a narrow lead over her Republican challenger Donald Trump with less than 24 hours remaining in the campaign for the White House. The premium investors demand to own emerging-market sovereign bonds over Treasuries narrowed the most since Sept. 22. Egypt’s pound weakened 3.6 percent after the central bank freed its currency, while stocks in Cairo extended a rally for an eighth day. Hungarian shares reached a record high after the country was returned to investment grade by Moody’s Investors Service.

Emerging-market investors perceive a victory by Clinton on Tuesday as positive after Trump put forward anti-trade pledges that may affect ties with Mexico and China. The peso has been considered a barometer for investors’ views on Trump’s chances in the election. A final Bloomberg poll released Monday pointed to a slim lead for Clinton while the Federal Bureau of Investigation yesterday reaffirmed that Clinton’s use of private e-mail servers wasn’t a crime.

“The main driver is the drop of the Clinton case,” said Regis Chatellier, a London-based strategist at Societe Generale SA, who favors sovereign international bonds from Mexico, Croatia and Turkey. “The market is pricing a higher chance for a Clinton victory.”

Voter sampling putting Clinton ahead in the election contest followed news that the FBI is sticking to its July conclusion of Clinton’s handling of her e-mails as secretary of state. The bureau’s director James Comey informed Congress just over a week ago the FBI was looking at fresh e-mails potentially related to Clinton, a statement that roiled the presidential race and breathed new life into Trump’s candidacy at a time most polls showed Clinton with a wide lead.

The MSCI Emerging-Market Index fell 2.8 percent last week after the FBI announced its new investigation, while actively managed emerging-market equity funds lost a net $327 million in the week ending Nov. 2, their first outflow in 19 weeks, EPFR Global data show.

Stocks

The MSCI Emerging Markets Index rose 1.3 percent, its first increase in five days, as of 1:48 p.m. in London. Ten of 11 industry groups advanced, led by energy companies and technology shares.

Brazil’s Ibovespa Index jumped 2.6 percent, the most in two months on a closing basis, amid the U.S. election news and as a Bloomberg commodity index tracking returns on raw materials gained the most since Oct. 10.

Egypt’s EGX 30 Index gained 5.4 percent, heading for the highest close since February 2015. Stocks in the Arab nation have rallied amid bets a decision to float its currency will help cement a $12 billion loan from the International Monetary Fund.

Turkish shares headed for the biggest gain since Sept. 22 on a closing basis. The BUX Index in Budapest rose 1.1 percent after Moody’s became the third main ratings company to give the former communist nation investment-grade status.

Samsung Electronics Co. lifted South Korea’s Kospi index higher by 0.8 percent. Indian shares rebounded 0.7 percent, halting a five-day drop.

Currencies

The MSCI Emerging Markets Currency Index added 0.2 percent, heading for the highest close since the end of October.

The peso added 2 percent and Brazil’s real appreciated 1.1 percent. South Korea’s won gave up earlier gains to trade little changed. South Africa’s rand strengthened 0.7 percent.

In Egypt, the pound has lost nearly 50 percent of its value since it was floated on Nov. 3. Egyptian banks began freely trading foreign exchange on the interbank market this week for the first time. The pound weakened 3.6 percent on Monday to 16.75 per dollar at the National Bank of Egypt, the country’s largest lender.

China’s yuan fell 0.3 percent after the central bank weakened its reference rate.

Bonds

The premium investors demand to own emerging-market sovereign bonds over Treasuries narrowed six basis points to 344, according to JPMorgan Chase & Co. indexes. Government bonds in Mexico gained for a fourth day while Brazilian debt jumped the most in emerging markets.

Russian sovereign debt advanced for a second day, pushing the yield on 10-year notes down eight basis points to the lowest since Oct. 27. Yields on similar maturity South African bonds fell.

South Korea’s government bonds retreated, with the yield on 10-year notes rising one basis point to 1.71 percent. The two-year yield, the most sensitive to the policy outlook, climbed one basis point to 1.51 percent ahead of a review Friday where the central bank is forecast to keep interest rates unchanged.

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