Emerging markets resume rally as oil rises; stocks at 5-1/2 month highs

LONDON: Emerging market assets resumed their recent rally on Tuesday as oil prices recovered, with stocks at 5-1/2 month highs and currencies strengthening across the board while Argentina wowed markets with its bond market return.

MSCI's emerging equity index rose 0.6 percent, as 2 percent gains on Russian dollar stocks added to earlier Asian gains and bourses across most of Eastern Europe climbed around 1 percent.

Investors were taking heart from oil prices rising 0.8 percent following four days of losses, which culminated in crude prices dropping as much as 7 percent on Monday after a botched meeting of oil exporters in Qatar.

For some, like Bank of America Merrill Lynch, it is time to revise bearish emerging market views.

"Investors should get out of the bunker and off the fence and make a longer-term bullish commitment to both Asia ex-Japan and EM equities," BAML analysts told clients, adding they were now "structurally bullish" on emerging stocks.

"We are at an inflection point that is likely to challenge the winners of the past five years and boost the losers."

Currencies also clocked up healthy gains against the dollar. Russia's rouble strengthened 0.9 percent while fellow crude producer Kazakhstan saw the tenge match those gains. South Africa's rand advanced 0.6 percent to nine- month highs while the lira touched a one-week high.

South Korea's won hit a more than five-month high after the central bank kept interest rates unchanged for a 10th straight month and its governor stressed current rates supported the economy.

Markets were also taking comfort from recent Chinese data that showed continued credit growth, UBS strategist Manik Narain said.

"The bears are in hibernation," said Narain, adding he expected the rally to last around another month before investors became increasingly more demanding on valuations.

"There are some doubts as to the sustainability of these factors - oil inventories are quite high and we are not expecting to see significant gains in oil prices from here."

Meanwhile, Argentina stole the show on debt markets, amassing more than $65 billion in orders for its first international bond sale in 15 years. The issue of up to $15 billion will price on Tuesday, with the majority of proceeds from the issue earmarked to pay back older hedge fund creditors.