Emerging-market stocks rise most in two years as Chinese shares end rout

Emerging-market stocks rose the most in two years and currencies strengthened as Chinese shares ended the steepest five-day rout since 1996 and investors hunted for bargains.

Ukrainian bonds climbed the most on record after the country said it agreed to a restructuring deal with creditors.

The Shanghai Composite Index soared 5.3 per cent amid speculation state funds have resumed buying. Equity gauges in Saudi Arabia and Dubai rose more than 4 per cent. The rouble gained the most among its peers, while Turkey’s lira advanced 0.7 per cent.

Ukraine’s $2.6 billion of notes due in July 2017 jumped as the country’s finance ministry said it reached an accord with a creditor committee that includes a 20 per cent writedown to the face value of about $18 billion (€16bn) of eurobonds.

The MSCI Emerging Markets Index surged 2.8 per cent to 809.06 at 11:50 am in London, tracking the biggest gain in US stocks since 2011, as valuations near the lowest level since March 2014 spurred appetite for riskier assets.

In Dublin, the Iseq had gained 3.12 per cent as midday approached.

US rally

The US rally halted a selloff that has shaved more than $8 trillion from global equities since China devalued its currency on August 11th. Some markets have declined too much "and current levels represent good entry points," Martial Godet, the head of emerging-market equities and derivatives strategy at BNP Paribas in Paris, said by e-mail.

“The correction has more than erased the divergence between valuations and profitability trends in Asia.”

The MSCI developing-nations measure is still down almost 8 per cent since China devalued the yuan, with the average price- to-earnings ratio for the next 12 months at 10.5 times, a 30 per cent discount to the MSCI World Index.

The 14 day relative-strength index on the gauge climbed above 30 on Thursday, ending its longest stretch of trading below the oversold level since June 2013. Trading under the 30 threshold suggests to some technical analysts that a security or index is poised to rebound after a sell-off.

All 10 industry groups in the emerging-markets measure rose on Thursday, led by energy shares. Cnooc, China's biggest offshore oil and gas explorer, surged 14 per cent in Hong Kong. PetroChina rallied 4.1 per cent.

Oil in New York gained as much as 4.8 pe rcent as US government data showed crude inventories unexpectedly shrank in the world’s biggest oil consumer.

Ukraine

Ukraine's dollar-denominated bond maturing in April 2023 rose 3.1 cents to 55.85 cents on the dollar. The Ukraine agreement pushes back redemption dates by four years and sets interest at 7.75 pe rcent on all maturities, according to a statement from the finance ministry.

Russia, which was offered the same terms as private bondholders, said it won’t participate in Ukraine’s restructuring.

The Shanghai Composite jumped in the last 45 minutes of trading as financial stocks rallied. The index tumbled 23 percent to an eight-month low in the previous five days. A gauge of 50-day volatility on the measure surged to its highest level since 1997 this week.

Bloomberg