Emerging stocks advance after OPEC deal

Kuala Lumpur - Emerging-market stocks rose for a third day as a preliminary agreement by OPEC to cut production drove commodity producers higher.

Indian shares and the rupee fell after the nation carried out surgical strikes on Wednesday night on terrorist camps in Pakistan.  Philippine, South African and Russian shares were among the biggest gainers as South Korea’s Kospi index rallied to a 14-month high.

Malaysia’s ringgit had the biggest gain in Asia as higher crude oil boosted the outlook for the energy-producing nation. Indian equities tumbled the most in Asia, the nation’s currency halted a five-day increase and the yield on sovereign notes maturing in September 2026 climbed four basis points to 6.82%.

The Organisation of Petroleum Exporting Countries (OPEC) agreed to cut production for the first time in eight years, surprising traders who had expected members to maintain output.

That’s spurring risk appetite for emerging assets, with the developing-nation stock gauge on track for its best quarterly performance since March 2012 and the currency measure set for the longest winning streak in two years.

"Markets are definitely reading the OPEC agreement favourably," said Danny Wong Teck Meng, chief executive officer at Areca Capital Sdn. in Kuala Lumpur, who oversees the equivalent of $170m.

"I’m not as bullish as there’s no concrete pact yet, but it is certainly a positive sign.”

Oil prices surged 5.3% on Wednesday. OPEC agreed to reduce production to a range of 32.5 million to 33 million barrels a day, Iran’s Oil Minister Bijan Namdar Zanganeh said after the meeting in Algiers. An OPEC committee will recommend limits at the formal gathering in November and Iran will be exempt from capping output.

Stocks

The MSCI Emerging Markets Index advanced 0.6% to 917.30 as of 3:30 in Hong Kong. The benchmark measure has rallied 10% so far in the three months ending September and is valued at 12.6 times projected 12-month earnings. That compares with a multiple of 16.1 for the MSCI World Index of developed-nation stocks, which has increased 4.6% since the end of June.

Seven out of 11 industry groups in the emerging-markets index climbed paced by energy and materials stocks.

China Petroleum & Chemical Corporation and PetroChina Company led Hong Kong’s Hang Seng China Enterprises Index to a 0.6% increase.

Taiwan’s Taiex index rose 0.8% as the stock market reopened after being shut for two days following a typhoon. Equity gauges in South Korea, Thailand and Indonesia increased at least 0.7%.

Surgical strike

The S&P BSE Sensex index dropped 1.4%, paring earlier losses of as much as 2%, as bank shares tumbled. The Indian rupee declined 0.5%.

India said it attacked terrorist camps in Pakistan late on Wednesday as Prime Minister Narendra Modi retaliated for a deadly strike against Indian soldiers earlier this month.  Heavy casualties were inflicted on militants assembled to infiltrate into India, the nation’s Director General of Military Operations Ranbir Singh said at a news conference. There are no plans to continue operations, he added.

"The markets are reacting to news of surgical strikes," said Ashtosh Raina, Mumbai-based head of foreign-exchange trading at HDFC Bank. "This is negative for the economy. Any strike, any tension across the border is definitely going to hurt sentiment."

Currencies

The MSCI Emerging Markets Currency Index added 0.1%, paring earlier gains of as much as 0.3%. The measure is up 2.3% since the end of June, set for a third quarterly rally.

The ringgit led gains among currencies on Thursday, strengthening 0.4% against the dollar. The Taiwan dollar appreciated 0.2%, while the South African weakened 0.4% and the Turkish lira lost 0.2%.