Emerging Markets Rise as Yield Hunt Resumes, Turkish Bonds Gain

(Bloomberg) -- Emerging-market stocks and currencies rose for the first time in three days as investors bet an environment of low interest rates will continue to drive the search for higher yields. Turkish bonds rallied after the central bank cut interest rates.

The yield on 10-year Turkish notes fell for the first time in five days after the central bank lowered its overnight lending rate by 25 basis points. The won joined South Africa’s rand in leading gains among peers as investors assessed the path of Federal Reserve policy before Chair Janet Yellen’s speech Aug. 26 at Jackson Hole, Wyoming. PZU SA dropped to a record low after a report said executives will fly to Milan to negotiate the terms of purchasing Poland’s Bank Pekao SA from UniCredit SpA.

A third monthly gain in stocks and currencies have come under threat amid increased bets for U.S. policy tightening this year, after New York Fed President William Dudley last week said markets may be underestimating the odds and Dennis Lockhart of Atlanta said accelerating economic growth may warrant at least one increase in 2016. Investors are now waiting to see if Yellen will use her Wyoming speech to signal an imminent move.

“Price action will remain driven by Jackson Hole expectations and general central bank rhetoric,” said Simon Quijano-Evans, emerging-market strategist at Legal & General Investment Management in London. A lack of “meaningful” gain in global interest rates “keeps the hunt for yield in emerging markets going in spite of temporary hiccups like domestic politics,” he said.

Currencies

The MSCI Emerging Markets Currency Index rose 0.4 percent as of 1:55 p.m in London. The South Korean won added 1 percent, the steepest advance among emerging-market peers, followed by a 0.8 percent increase in the rand.

Turkey’s lira kept gains after central bank cut the overnight lending rate by 25 basis points to 8.5 percent, matching the median estimate in a Bloomberg survey.

Stocks

The MSCI Emerging Markets Index rose 0.3 percent, ending a 1.3 percent two-day loss. Samsung Electronics Co. contributed the biggest boost to the gauge with technology and consumer-staples companies leading gains.

LG Household & Health Care Ltd. advanced 6.5 percent amid optimism sales will rise after data showed Chinese tourists visiting South Korea increased threefold in July from a year earlier.

PZU fell 3.5 percent and Bank Pekao slid 2.9 percent after Polish newspaper Dziennik Gazeta Prawna reported that the heads of PZU and the state-run Polish Development Fund will fly to Milan to negotiate the terms of a Bank Pekao purchase from UniCredit.

Shares in Saudi Arabia retreated 0.2 percent as Brent crude slid for a third day. Iraq, the second biggest producer in the Organization of the Petroleum Exporting Countries, is in the process of boosting crude exports by about 5 percent after an agreement to resume shipments from three oil fields in Kirkuk.

Bonds

The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed two basis points to 335, according to JPMorgan Chase & Co. indexes.

Turkish 10-year bonds rallied, sending the yields down eight basis points to 9.79 percent. The overnight lending rate, the top end of Turkey’s interest corridor, has fallen 225 basis points since March to 8.5 percent.

The yield on 10-year local bonds in Hungary rose one basis point. The country’s central bank left the main interest rate at 0.9 percent, matching forecasts in a Bloomberg survey.