(Bloomberg) -- Developing-nation stocks gained, following their best week in a month, as bets rose for a victory by Hillary Clinton in U.S. presidential elections and a go-slow approach by the Federal Reserve for increases in U.S. borrowing costs.
Volatility on the MSCI Emerging Markets Index declined to the lowest since Sept. 9, according to data compiled by Bloomberg. Chinese stocks jumped, while the yuan fell amid signs China may be willing to tolerate a weaker exchange rate to help arrest an export slump. A gauge of developing-nation currencies halted a two-day drop as the dollar retreated and an increase in raw-material prices boosted exchange rates in commodity-producing nations. South Africa's rand and bonds rallied ahead of the presentation of a mid-term state budget.
Optimism developing-market shares will extend a 15% rally in 2016 have been bolstered as investors see the Federal Reserve adopting a policy of gradual increases after a move in December. Mark Mobius, executive chairman of Templeton Emerging Markets Group, predicted Friday the Fed will raise rates "by a little bit but not excessively," while Clinton's odds of capturing the White House on Nov. 8 reached 91%, according to PredictWise.
"After months of uncertainties, the market is clearly pricing Clinton to win the next U.S. election and a Fed hike for December, but with limited Fed actions thereafter," said Regis Chatellier, a London-based strategist at Societe Generale SA, who favors bonds from Colombia, Mexico, Turkey and the Ivory Coast among developing-market sovereign international debt.
Investors added more than $750 million to ETFs that buy emerging-market stocks and bonds last week, extending the longest winning streak in more than a year as inflows exceeded $24 billion over the past 21 weeks.
STOCKS
The measure of developing-nation stocks rose 0.8% to 917.18 as of 2:30 p.m. in London, extending last week's gain of 1.6%, the biggest jump since the five days ending Sept. 23. The index's 30-day historical volatility declined to the lowest in more than six weeks while the expected price swings in a U.S. exchange-traded fund tracking the MSCI gauge fell for a sixth successive day through Friday.
"Volatility tends to rise when markets are nervous and or unusually uncertain," said Tony Hann, the head of equities at Blackfriars Asset Management in London, whose Oriental Focus Fund has outperformed 94% of peers this year. "Certainty on U.S. elections has risen and nervousness about oil and China has diminished at the margin. Hence, there is lower volatility."
The Shanghai Composite Index jumped 1.2% to close at its highest level since Jan. 8, on optimism Chinese authorities will boost spending and hasten reform of state-owned companies.
Poland's WIGBank Index added 2%, the most in almost two months. A plan to convert foreign-currency denominated loans to zloty will ensure financial system stability, Polish President Andrzej Duda said in an interview published on Monday by WSieci.
Turkey's BIST 100 Index advanced the most in more than a month on a closing basis as the bourse's banking index added 1.8% in Istanbul amid gains in Garanti and Akbank.
The Philippine Stock Exchange Index dropped for a third day even as President Rodrigo Duterte clarified he's not cutting the nation's cord with the U.S. and that maintaining ties would be in his country's best interest. Bourses in Egypt and Vietnam fell at least 0.6%.
CURRENCIES
The MSCI Emerging Markets Currency Index rose 0.2 after retreating 0.4% in the previous two sessions.
Brazil's real gained to a 10-week high on a closing basis as President Michel Temer canvassed support for a bill to cap spending. The rand jumped 0.7% before Finance Minister Pravin Gordhan presents his mid-term budget in Cape Town on Wednesday. Gordhan has pledged to maintain fiscal discipline and avoid a junk credit rating.
China's offshore exchange rate retreated 0.2% to 6.7821 a dollar in Hong Kong, near a record low of 6.7850 reached on Sept. 1, 2010. The Thai baht, Russian ruble and South Korean won all appreciated at least 0.3%.
The premium investors demand to own emerging-market sovereign bonds over U.S. Treasuries was unchanged at 331 basis points, according to JPMorgan Chase indexes.
The yield on South African government 10-year bonds fell three basis points to 8.79% while the rate on comparable Brazilian debt declined 12 basis points.
