Emerging-Market Assets Rally on Yield Hunt Before Yellen Speech 

• ‘The market is back to the search for yield,’ CBA’s Ji says
• Emerging-market currency volatility touches eight-week high

Emerging-market currencies and stocks rose as investors sought out higher-yielding assets before a speech by Federal Reserve Chair Janet Yellen which may shed light on the outlook for U.S. interest rates.

The won and South Africa’s rand led gains as a gauge of developing-nation currencies rebounded from the biggest decline in two months on Wednesday. Investors will parse Yellen’s remarks at a symposium in Jackson Hole, Wyoming Friday after Vice Chairman Stanley Fischer last weekend became the latest policy maker to signal an increase by year-end is still under consideration. Taiwan’s shares had the best performance among emerging markets.

“The market’s just trying to get through the whole event risk of Jackson Hole,” said Andy Ji, a currency strategist in Singapore at Commonwealth Bank of Australia. “But after that, what’s driving the market is back to the search for yield and it’s good for emerging markets in general. We just have to get through the week.”

Currencies

The MSCI Emerging Markets Currency Index advanced 0.1 percent as of 6:34 a.m. in London. It dropped 0.7 percent Wednesday as political and security concerns resurfaced in South Korea, South Africa and Turkey. A JPMorgan Chase & Co. gauge that measures the volatility of developing-nation currencies climbed to the highest since July 1 Thursday.

The recent flare-ups in emerging markets have pressured sentiment at a time when traders are searching for clues on the Fed’s approach to tightening monetary policy. Fed fund futures show the odds of a hike in 2016 have climbed to 54 percent from 47 percent one week ago.

The won strengthened 0.5 percent against the greenback and Taiwan’s dollar and Turkey’s lira gained 0.2 percent. The ringgit also rose 0.2 percent, halting four days of losses.

South Africa’s rand advanced 0.2 percent, after tumbling 5.6 percent in the previous four days.

Concern that South African Finance Minister Gordhan may lose his job drove the rand to its lowest level in three weeks on Wednesday. A special police investigative unit told Gordhan in a letter to report to its offices on Thursday. Gordhan said that he had done nothing wrong by authorizing the establishment of a special investigative unit when he headed the national tax agency and wouldn’t comply.

“By and large, the market is nervous, because of what the Fed officials have already said,” said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. “If Yellen takes that line as well, we could see this translating into greater dollar strength.”

Stocks

The MSCI Emerging Markets Index rose 0.2 percent, rallying from the steepest drop since July 6. The gauge is still up almost 3 percent this month, compared with a 0.6 percent advance for the MSCI World Index.

Eight out of 10 industry gauges in the MSCI Emerging Markets Index gained, led by consumer and financial shares. China Mengniu Dairy Co. had the biggest advance, jumping 7.2 percent in Hong Kong after first-half sales beat analysts’ estimates.

Taiwan Semiconductor Manufacturing Co. climbed 1.4 percent as Taiwan’s Taiex index rose 0.9 percent. Equity gauges in India, Indonesia, Malaysia and Thailand advanced at least 0.2 percent.

Some investors from developed markets such as the European Union and U.S. “are probably looking into emerging equities for higher-yielding assets,” said Andrew Sullivan, managing director for sales trading at Haitong International Securities Group in Hong Kong. “Uncertainties still remain as trading volume is very light because investors are very cautious before the speech of the Fed chairwoman tomorrow.”

The Shanghai Composite Index fell 0.9 percent on concern the government will act to cool speculative activity in the nation’s financial markets.

The Chinese government on Wednesday imposed limits on lending by peer-to-peer platforms to individuals and companies in an effort to curb risks in one part of the loosely regulated shadow-banking sector.

Source: Bloomberg

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