Bloomberg News

Emerging-Market Stocks Advance Most in Two Weeks on China Growth

June 14, 2011

June 14 (Bloomberg) -- Emerging-market stocks rose the most in two weeks, currencies strengthened and borrowing costs fell as better-than-estimated industrial production in China eased concern that the fastest-growing major economy is slowing.

The MSCI Emerging Markets Index advanced 0.9 percent to 1,134.34 at 11:11 a.m. New York time, set for the biggest gain since May 31. Brazil’s Bovespa index gained for the first time in three days and China’s Shanghai Composite Index increased 1.1 percent, Taiwan’s Taiex Index climbed 1.3 percent and South Korea’s Kospi rallied 1.4 percent. Poland’s WIG20 Index added 0.6 percent as KGHM Polska Miedz SA rose on higher copper prices. The Russian ruble strengthened 0.5 percent against the dollar.

China’s industrial production rose 13.3 percent in May from a year earlier, topping the 13.1 percent median estimate in a Bloomberg News survey, while fixed-asset investment quickened and inflation accelerated to the fastest pace in almost three years. Shares pared some of their gains after the People’s Bank of China said it will raise the reserve-requirement ratio for lenders by 0.5 percentage point.

The Chinese data “provide further evidence that growth is moderating in response to recent policy measures, but at a very gradual pace, with little to suggest that Beijing needs to worry about a hard landing in coming months,” Brian Jackson, a senior emerging-market strategist at RBC Capital Markets in Hong Kong, wrote in an e-mailed note today.

Valuations Drop

The MSCI emerging-market index gauge has dropped 1.5 percent this year, compared with a 2.1 percent advance in the MSCI World Index of developed-nation shares. Stocks in the emerging-market index traded at 10.9 times analysts’ 12-month earnings estimates yesterday, the lowest level since March 2009, and were valued at 12.3 times today, according to data compiled by Bloomberg.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries declined 12 basis points, or 0.12 percentage point, to 302 today, according to JPMorgan Chase & Co.’s EMBI Global Index. The Markit iTraxx SOVX CEEMEA Index of credit-default swaps for emerging Europe, the Middle East and Africa fell four basis points to 197.

The Bombay Stock Exchange Sensitive Index increased 0.2 percent, while India’s government note yields climbed and the rupee strengthened 0.3 percent against the dollar. India’s inflation accelerated in May, exceeding the median economist estimate in a Bloomberg News survey and adding pressure on the central bank to extend the fastest round of interest-rate increases among Asia’s major economies.

Shanghai Composite

In Brazil, Iron-ore miner Vale SA, whose top export market is China, followed metal prices higher.

The Shanghai Composite climbed the most in two weeks. Anhui Conch Cement Co., China’s largest cement producer, surged 9 percent, its biggest gain since July 28. Huaxin Cement Co. jumped 8.6 percent. Fixed-asset investment excluding rural households expanded 25.8 percent in the first five months, compared with analysts’ 25.2 percent median forecast.

The MSCI emerging-market index trimmed some of its gains after China’s announcement on reserve requirements, which came after markets in Shanghai, Seoul and Taipei had shut. The MSCI China Index, which tracks mainly Chinese shares listed in Hong Kong, pared its gain to 0.1 percent from as much as 0.9 percent.

“China’s reserve-requirement increase will have a limited impact on equities in China and other Asian countries,” said Saharat Chudsuwan, the Bangkok-based chief investment officer at Tisco Asset Management Co., which oversees about $4.6 billion including Chinese equities. “The Chinese move is in line with most investors’ expectation for another round for tightening policies to control the inflation. We expect the Chinese authorities will be less aggressive in conducting policies in the second half.”

--With assistance from Tal Barak Harif in New York, Weiyi Lim in Singapore, Anuchit Nguyen in Bangkok and Irene Shen in Shanghai. Editors: Stephen Kirkland, Gavin Serkin

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net.


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