VINACHEM

As emerging-market stocks and currencies trimmed the week’s advance amid mixed signals coming out of China over the health of the world’s second-largest economy, Mark Mobius said the rally has further to go.

While this month’s gains in developing-nation shares and exchange rates are a fraction of what they were in March, Mobius cited the number of investors that are underweight the assets and “cheap” valuations for his prediction. Chinese manufacturing and exports data have shown improvement, but a resurgence in lending and an increase in defaults are causing concern. The Shanghai Composite Index posted its worst week since a January rout shaved almost $6 trillion off global stocks.

“We have seen weakness in emerging markets in the past three years,” Mobius, the executive chairman of Templeton Emerging Markets Group, said in an interview in Manila. “On the way up, we are going to see pullbacks. It will be a big battle to create this foundation, but we are definitely on the move up.”

The MSCI Emerging Markets Index tracked the U.S. lower on Friday as all 10 industry groups in the gauge declined, led by health care and industrial companies. Polish bonds, stocks and the currency fell after data showed Franklin Templeton had reduced its holdings in the country’s debt in the first quarter to a 2010 low. The ruble strengthened the most among developing-country peers as Brent crude extended its third weekly gain, while Brazil’s real led losses as the central bank took steps to weaken it.

Developing nations have been a beneficiary of a pickup in commodities. Oil prices in London held near $45 a barrel, after climbing through $46 on Thursday for the first time since November. Brent crude is up 13 percent in April. The Bloomberg Commodity Index has risen 4 percent this week.

The outlook for a slower pace of rate increases has supported demand for emerging-market assets in the past few months. Interest-rate futures show less than a 50 percent chance the Federal Reserve will add to its monetary tightening at its meetings in April, June and July, although the odds have risen from a week ago.

Stocks

The MSCI Emerging Markets Index retreated 0.9 percent to 846.14 by 2 p.m. in London, wiping out gains for the week, compared with a 3.7 percent rally through April 15. The gauge is up 1.1 percent in April, slowing from a 13 percent advance in March.

Measures tracking industrial and health care companies decreased 1.2 percent. The broader index is trading at 12 times projected 12-month earnings, compared with a multiple of 16.1 for the MSCI World Index of shares. The gauges have climbed 6.6 percent and 1.4 percent, respectively, this year.

The Shanghai Composite dropped as much as 0.9 percent before reversing the loss to close 0.2 percent higher. It was down 3.9 percent for the week, the steepest slide since a more than 6 percent plunge in the last week of January. The Hang Seng China Enterprises Index of Chinese shares traded in Hong Kong declined 1.4 percent, taking the week’s loss to 1 percent.

The FTSE/JSE Africa All Shares Index dropped 0.7 percent in Johannesburg and was down 0.2 percent on the week. The Budapest Stock Exchange Index lost 0.8 percent and slid 1.3 percent from a week earlier.

The WIG20 lost 0.9 percent in Warsaw. The $51 billion Templeton Global Bond Fund reduced ownership of zloty debt to 3.5 percent of its portfolio at the end of March, the least since at least 2010 and down from as much as 14.4 percent in the middle of 2012, according to the fund’s quarterly data and figures compiled by Bloomberg.

“Investor sentiment remains weak as there are still some uncertainties over China,” said Indra Mawira, an investment manager who helps oversee 12 trillion rupiah ($912 million) of assets at Panin Asset Management in Jakarta. “Emerging markets gained strongly and some investors might decide to lock-in gains and wait for more signs from the first-quarter numbers to see if the rally can be justified.”

Currencies

The MSCI Emerging Markets Currency Index weakened 0.5 percent, cutting its weekly gain to 0.1 percent. It’s little changed in April, slowing from March’s 5.2 percent increase. Brazil’s real tumbled 1.4 percent on Friday, while Poland’s currency lost 0.7 percent versus the euro. Brazil’s central bank sold 20,000 reverse currency swaps on Friday, a move that’s equivalent to buying about $1 billion dollars in the futures market.

The ruble advanced 1.6 percent to 65.79 per dollar on Friday. Exporters buying the local currency to pay their local tax bills in the second half of the month have combined with a resurgent oil price to lift the currency of the world’s biggest energy exporter, according to Sberbank CIB.

Bonds

Polish bonds retreated on Friday, with the 10-year yield climbing above 3 percent for the first time since March 3 on a closing basis. Similar-maturity Russian debt yields also climbed, rising four basis points to 9.20 percent.