Fading political risks and wagers that recent declines have overshot the potential impact of a China slowdown lured investors back to emerging-market stocks.
Russian equities and bonds rallied the most among developing nations as signs grew the need to put up a joint fight against terrorism is bringing President Vladimir Putin closer to his former foes. Turkish shares rebounded from this month’s low as the country’s president and prime minister prepared to meet over forming a new government. Polish equities rose the most since Oct. 5 before the new premier makes her first policy address to parliament on Wednesday. Brazil’s real rose as the central bank stepped up support for the currency before a congressional vote on the budget.
While global concerns about China’s growth outlook and higher U.S. borrowing costs dominated the headlines, political disputes underlying a hung legislature in Turkey and Russia’s stand-off against the West over Ukraine also contributed to $4.5 trillion meltdown in emerging-market stocks since mid-June. Even as elections resolve some of those issues, Islamic State attacks that killed at least 129 people in Paris last week highlighted the urgency for world leaders to bridge their differences.
“There’s been a lot of pessimism since summer,” said William Jackson, an emerging-market analyst at Capital Economics Ltd. in London. “From the data that’s been coming in, there’s been no sign of the slowdown to match the fears. We will see a continuation of the relief rally if the economic data holds up.”
The MSCI Emerging Markets Index advanced 1.2 percent to 822.75 as of 11 a.m. in London, heading for the biggest gain since Nov. 3. The gauge fell on seven of the past eight days taking its relative strength index closer toward 30, a level some technical analysts and short-term investors interpret as a signal to buy. All 10 industry groups on the gauge rose on Tuesday, with energy and information technology shares climbing the most.
Investors looking for bargains may find the valuations of emerging-market stocks becoming attractive. Projected earnings in the gauge’s members account for 8.3 percent of its price, 2.3 percentage points more than a similar measure for advanced- nation shares. That difference in earnings yield is higher than the 10-year average of 2 percent, according to data compiled by Bloomberg.
“We are still quite positive on emerging markets, there’s a big valuation discount now for emerging-market assets compared to the developed markets,” said Adithep Vanabriksha, Bangkok- based chief investment officer at Aberdeen Asset Management Plc. “You probably would get some of these investors re-looking at these assets now.”