Investors from Bank Julius Baer & Co. to Pictet Asset Management predict emerging-market assets will extend gains after Lawrence Summers pulled out of contention to be the next Federal Reserve chairman.
The former Treasury Secretary would have reined in Fed stimulus faster than Janet Yellen, his main rival to replace Ben S. Bernanke, according to a Bloomberg Global Poll last week. The central bank’s monthly bond-buying program, which fueled demand for higher-yielding assets worldwide, will probably be cut to $75 billion from $85 billion at a review this week, according to the median estimate of economists surveyed Sept. 6 by Bloomberg.
“The stage is being set for emerging markets to do better and the Summers thing in the short-term can provide some boost,” Stefan Hofer, an economist at Bank Julius Baer, which oversees $406 billion of client assets globally, said in a phone interview. Asia offers the best prospects as there is the added benefit of an improving Chinese economy, he said.
The MSCI Emerging Markets Index climbed 1.4 percent as of 12:29 p.m. in London, headed for its best close in three months, as benchmark stock gauges in Indonesia, the Philippines, Thailand and Turkey advanced more than 2 percent. South Africa’s rand, India’s rupee and the Turkish lira all gained in excess of 1 percent. Indonesia’s 10-year bond yield fell as much as 40 basis points, or 0.40 percentage point, to a one-month low of 7.95 percent.
Yellen, Kohn
U.S. President Barack Obama said he accepted Summers’ decision. Summers was one of three candidates mentioned by Obama as possible replacements for Bernanke, whose term as Fed chairman ends on Jan. 31. Yellen, the current Fed vice chairman, was also on the list along with Donald Kohn, a former Fed vice chairman.
“In the perception of the market, Summers was a hawk and Yellen a dove,” Jan Dehn, London-based head of research at Ashmore Investment Management, which has $77.4 billion under management in emerging markets, said by e-mail. “In reality, it is pretty irrelevant who becomes Fed chair, but having swung one way too far, the market must now swing back the other way.”
Positions ‘Unwinding’
Net outflows from emerging-market equity funds peaked at $20.26 billion in June after Bernanke told Congress on May 22 the central bank could scale back the pace of its mortgage bond and Treasuries purchases if the U.S. economy showed sustained improvement, according to data of EPFR Global. Some $2.44 billion left developing-nation equities in July and another $9.15 billion in August, the data show.
The MSCI Emerging Markets Index Asia-Pacific Index has still lost 4.6 percent since May 22. The gauge jumped 7.5 percent this month, poised for the biggest gain since January 2012, amid signs economic growth is strengthening in the U.S., Europe and China.