Emerging Markets Rebound as Fed Urgency Fades Amid Brexit Angst

(Bloomberg) -- Emerging-market stocks and currencies rebounded on further evidence the Federal Reserve will refrain from tightening policy anytime soon amid rising uncertainty about the outlook for growth at home and abroad.

A gauge of developing-nation equities ended a two-day decline. South Korea's Kospi index led gains among benchmarks, and the won strengthened the most as a measure of currencies rose for the first time this week. Minutes of the Fed's June meeting released Wednesday showed policy makers were losing confidence in the U.S. economy's ability to withstand an interest-rate hike as they awaited Britain's vote on exiting the European Union a week later.

Emerging markets have witnessed wide swings in the aftermath of the U.K.'s June 23 Brexit verdict as investors assessed its impact on the world economy amid speculation that major central banks will add stimulus. The uncertainty has been compounded by concerns about China's growth outlook, fueling demand for haven assets such as the Japanese yen, sovereign bonds and gold.

“Investors are heaving a sigh of relief as the Fed notes indicate that there won't be any rate hike within the year,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc. in Manila. “It seems the bar is still open and the party goes on. This time around it won't be a party with wild abandon. A U.S. rate increase will eventually happen.”

Samsung Earnings

The MSCI Emerging Markets Index rose 0.8 percent to 825.86 as of 12:47 p.m. in Hong Kong. All 10 industry groups advanced, led by information technology companies as South Korea's Samsung Electronics Co. reported its biggest operating profit in more than two years. The world's largest maker of phones and memory chips climbed 2 percent and was the biggest contributor to the measure of developing-nation shares. The Kospi gained 1 percent.

The Hang Seng China Enterprises Index of mainland companies trading in Hong Kong rose 0.8 percent, halting a two-day slide, while the Shanghai Composite Index fell 0.5 percent, halting a four day gain that sent gauge to 11-week high on Wednesday. Taiwan's Taiex Index rose 0.8 percent, its first advance in three days.

Vietnam, Thailand

Equity benchmarks in Vietnam and Thailand advanced at least 0.5 percent while India's Sensex gained 0.2 percent. The Philippine Stock Exchange Index fell 0.3 percent as trading resumed after a holiday, while markets in Malaysia and Indonesia remained shut.

The measure of developing-nation shares has risen 4 percent this year, while the MSCI World Index declined 1.2 percent. The emerging-markets gauge is trading at 11.8 times the projected 12-month earnings of its constituents, a 25 percent discount to the MSCI World Index's 15.7 multiple, data compiled by Bloomberg show.

The MSCI Emerging Markets Currency Index advanced 0.4 percent, headed for its first increase in four days. The won rose 1 percent, heading for its biggest jump in more than two weeks, while Taiwan's dollar strengthened 0.4 percent.

“The Fed's dovish stance, as attested in minutes, will probably continue given a lot of uncertainties right now in global economies, especially after Brexit,” said Ha Keon Hyeong, an economist at Shinhan Investment Corp. in Seoul.

--With assistance from Jung Park To contact the reporter on this story: Ian Sayson in Manila at isayson@bloomberg.net. To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Amit Prakash, Shikhar Balwani