The Federal Reserve’s surprise decision to refrain from scaling back monetary stimulus provided a respite to investors in emerging markets, where currencies are in the midst of their worst rout in two years.
“It gives everyone some breathing time,” Denise Simon, an emerging-market fixed income manager at Lazard Asset Management, which oversees $147 billion, said by phone from New York. “It certainly takes some of the immediate pressure off the more vulnerable countries. Emerging markets will continue to correct on the upside as the result.”
The Brazilian real and Turkish lira jumped more than 2% and JPMorgan Chase & Co.’s index for dollar-denominated bonds in developing nations posted the biggest rally in almost three months yesterday, after the Fed said it will keep buying $85 billion of debt a month. Companies and governments in Colombia, Chile, Turkey, Brazil and Mexico announced plans for overseas bond sales a day after the Fed kept its stimulus program intact, driving down yields on emerging-market debt.
Fed Chairman Ben S. Bernanke held back from paring monetary stimulus to support economic growth, soothing investors who had dumped emerging-market assets since May as higher U.S. interest rates sparked capital flight. A group of the 20 most traded emerging-market currencies lost 7.4% between May and August, the most in two years.
The decision came at a time when economic data from China to Brazil are showing signs of improvement and helps countries most dependent on foreign financing such as Brazil and India, Simon said.
The Indonesian rupiah led gains in Asian currencies today and Indonesia’s Jakarta Composite Index advanced the most in almost two years.
The rupee strengthened 2.6% against the dollar at 9:22 a.m. in London and Thailand’s baht appreciated 1.1%. The Malaysian ringgit increased 2.7%. The Jakarta Composite Index jumped 4.7% and India’s S&P BSE Sensex Index added 3.4%.
The real led the rally in developing-nation currencies yesterday, gaining 3.2% to 2.1860 per dollar and up 9.1% in September, poised for the biggest monthly advance since October 2011.
Brazil’s Ibovespa climbed 2.6%, extending its gain from a four-year low reached in July to more than 20%. JPMorgan’s bond index advanced 1%, bringing its rally this month to 3%.