LONDON, Nov 20 — Currencies and stocks across emerging markets staged their biggest rally in six weeks as the Federal Reserve signaled it will raise interest rates gradually, spurring optimism for a tempering in outflows from riskier assets.

A gauge tracking 20 exchange rates in developing countries increased 0.1 per cent today, bringing its five-day advance to 0.8 per cent and pulling the measure from the verge of a record low. The MSCI Emerging Markets Index approached its 100— day moving average after climbing 2.4 per cent this week. Malaysia’s ringgit rallied 1.4 per cent, leading gains among peers it’s mostly trailed this year.

Goldman Sachs Group Inc predicted emerging markets are about to turn the corner as economic growth accelerates, helping bolster sentiment after Fed meeting minutes released on Wednesday revealed that while “it may well become appropriate” to end almost seven years of near-zero borrowing costs in December, the pace of tightening won’t be quick. Higher interest rates reflect confidence in the strength of the US economy, a major export market for emerging nations.  

“The Fed comments were seen as comforting in as much as they suggested a gradual pace of tightening,” said Tony Hann, the head of equities at Blackfriars Asset Management Ltd in London. “We see valuations as being supportive but the global macro backdrop will remain soft in to next year in our view. This makes it hard to be too bullish on the asset class as a whole.”

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The odds for the Fed to start lifting rates in December were 68 per cent today, up from 32 per cent a month ago, according to data compiled by Bloomberg. The US rates outlook hammered riskier assets this year, pushing the MSCI gauge down 12 per cent versus a 0.6 per cent drop for the MSCI World Index of stocks in the developed world. Developing-nation stocks have trailed developed nation peers by 51 percentage points over the last three years as commodity prices and economic growth slowed.

On the currency front, Brazil’s real slumped 29 per cent in 2015 against the dollar, followed by drops of at least 17 per cent for peers in South Africa, Turkey, Malaysia and Colombia. This week, the Brazilian currency jumped 3.5 per cent.

Russia’s ruble halted its four-day rally today, curbing the best weekly advance in six, as investors turned their attention to oil. Aligning political interests in Syria with those of France and the US boosted investor appetite for Russian assets this week, although the price of the nation’s main export remains not far off of its six-year low.

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As growth picks up and weaker currencies help alleviate economic imbalances, “2016 could be the year EM assets put in a bottom and start to find their feet,” Goldman strategists led by Kamakshya Trivedi wrote in a note yesterday. “There is the prospect of improved growth and better returns, even if it is not a rerun of the roaring 2000s.”

Even though countries such as Colombia, South Africa, Turkey and Malaysia still need to tackle their current account imbalances, others including Russia, India and Poland have improved enough for their assets to rally, Goldman said.

All 10 industry groups in the MSCI Emerging Markets Index traded higher by 11:03 am in London, with industrial and technology companies leading gains. Hyundai Merchant Marine Co, which has operations in North Korea, soared 26 per cent in Seoul after a report that a meeting between North and South Korea has been proposed for November 26.

Stocks on the emerging MSCI measure trade at an average 11.3 times 12-month estimated earnings, a 30 per cent discount to the MSCI World Index. The premium investors demand to own developing-nation debt over US Treasuries narrowed two basis points to 380, down from 393 at the end of last month.

The Philippine Stock Exchange Index posted the steepest increase in a month, led by a 3.7 per cent gain in Ayala Land Inc. The Hang Seng China Enterprises Index rose 1.1 per cent amid speculation that the Chinese government will take more steps to stimulate the economy. 

The ringgit appreciated 2.4 per cent in two days. The Malaysian currency is the worst performer in Asia this year amid a slide in energy prices that’s cut earnings for the region’s only major net oil exporter. — Bloomberg