Emerging stocks poised for longest monthly rally in nine years

Ian Sayson

Emerging-market stocks are on a winning streak as slow recovery in the developed world offsets concerns over geopolitical tensions.

?The emerging-markets gauge has risen 8.4% this year and trades at 11.3 times projected 12-month earnings, near the most expensive level since 2011. (Oupa Nkosi, M&G)

Emerging-market stocks are headed for the longest streak of monthly gains since 2005, as optimism that central banks will support economic growth helped offset geopolitical tensions between Ukraine and Russia.

Brazil’s Ibovespa led the advance this month on speculation that President Dilma Rousseff will lose her re-election bid amid faltering economic growth. The S&P BSE Sensex rose to a record on Thursday to cap the longest monthly rally since 2007. The MSCI Emerging Markets Index was little changed at 1.086.80 at 1.40pm in Hong Kong on Friday.

The developing-nation measure has risen 2% in August, poised for seventh months of advances. The value of global equities reached a record $66-trillion this week on bets markets worldwide can withstand crises in Ukraine, the Gaza Strip and Iraq.

“Investors at this point are not factoring those geopolitical risks as something that will have a material impact on growth,” said Noel Reyes, chief investment officer at Manila-based Security Bank Corporation. Still, “a lot of markets are at periodic highs and ripe for a correction. It’s only a matter of time for investors to use these political risks and take profit”.

Stock valuations
The emerging-markets gauge has risen 8.4% this year and trades at 11.3 times projected 12-month earnings, near the most expensive level since 2011, data compiled by Bloomberg show. The MSCI World Index of developed nations has gained 5% and is valued at a multiple of 15.

Aluminum Corporation of China fell to a five-week low in Hong Kong on Friday after its first-half loss widened. CSPC Pharmaceutical Group sank 7% after a major shareholder said it would sell a stake.The Ibovespa has gained 7.9% this month. 

An election poll this week showed Marina Silva would win in a runoff against Rousseff. Data on Friday may show Brazil’s economy contracted in the second quarter by the most since the global financial crisis, according to the median forecast from 42 economists surveyed by Bloomberg.

The Sensex gained 2.9% this month and closed at a record on Thursday. Markets are shut on Friday for a holiday. International investors extended this year’s net purchases of Indian stocks to $12.9-billion, the most among eight Asian markets tracked by Bloomberg. Data on Friday may show gross domestic product expanded at the fastest pace in more than two years in the quarter ended June 30.

Thailand’s SET Index rose 0.2% on Friday, extending this month’s gain to 4%. Investors were lured back by increasing political stability following a military coup that ended months of unrest.

Pakistan’s equity gauge rose 3.1%, poised for its biggest gain since July 2009, on speculation the army will help resolve a political standoff that’s led to two weeks of anti- government protests. – Bloomberg

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