Bloomberg News

Emerging-Market Stocks Advance After Brazil Cuts Interest Rates

September 01, 2011

Sept. 1 (Bloomberg) -- Emerging-market stocks rose, with the benchmark climbing to the highest level in almost four weeks, after Brazil’s surprise rate cut boosted investors’ confidence that developing nations can weather faltering global growth.

The MSCI Emerging Markets Index added 0.5 percent to 1038 by 4:34 p.m. in New York, the highest close since Aug. 5. Brazil’s Bovespa index surged to the highest level in a month after the central bank unexpectedly cut the benchmark lending rate yesterday. Benchmark indexes in Chile, Russia, South Africa and Taiwan increased for a fifth day.

The Brazilian central bank’s surprise cut in interest rates makes the country the second in the Group of 20 after Turkey to use that tool to safeguard the economy against a global slowdown. The bank’s board, led by President Alexandre Tombini, voted to cut the benchmark rate a half point to 12 percent after raising it at each of its previous five meetings.

“The Brazilian rate cut is significant because it shows how emerging markets have the monetary flexibility that developed markets don’t have,” said Ed Kuczma, who helps manage $30 billion at Van Eck Associates in New York. “Developing nations are able to go ahead against slowdown and to stimulate the economy.”

A manufacturing gauge based on a survey of purchasing managers in the 17-nation euro region slumped to the weakest in two years, London-based Markit Economics said today. In China, manufacturing growth remained near a 29-month low last month and purchasing managers’ indexes in South Korea and Taiwan contracted, highlighting signs of a worsening global slowdown.

Exporters Gain

The Bovespa index rose 2.9 percent to the highest level since Aug 1. Banco Bradesco SA, Brazil’s second-biggest bank by market value, gained the most since March 2009. BM&FBovespa SA, the operator of Brazil’s largest bourse, jumped 8.3 percent, the most since May 2010. Tecnisa SA rose 8.8 percent, leading gains by real estate companies, as the BM&FBovespa Real Estate Index rose 6.2 percent.

Exporters advanced on speculation shipments to the U.S., the biggest market for Asian products, will increase. Samsung Electronics, South Korea’s biggest exporter of consumer electronics, gained 3.6 percent in Seoul. Li & Fung Ltd., which gets about 65 percent of its revenue in the U.S., surged 5.7 percent in Hong Kong.

While Brazil’s central bank cut its benchmark interest rate yesterday, all 62 analysts surveyed by Bloomberg expected no change, as was favored by the two dissenting board members.

“The move may be a good reminder for central bank governors in China and other Asian countries,” said Yang Delong, a fund manager at China Southern Fund Management Co., which oversees $21 billion. “It might be time to think if monetary policy has been too tight.”

Real Weakens

The Brazilian real led declines among emerging market currencies, weakening 1.9 percent versus the dollar, followed by the Hungarian forint with a 1.6 percent drop.

The WIG20 Index fell for the first time in four days, retreating 1.5 percent in Warsaw, and Hungary’s BUX Index fell 1.1 percent.

The euro region purchasing managers’ index declined to 49 from 50.4 in July, according to Markit. That’s below an initial estimate of 49.7 published on Aug. 23. A reading below 50 indicates contraction.

U.S. Manufacturing

U.S. manufacturing unexpectedly expanded in August, showing that the two-year economic recovery may be sustained. The Institute for Supply Management’s factory index fell to 50.6 last month, the lowest level since July 2009, when economists projected the gauge would drop to 48.5, according to the median forecast in a Bloomberg News survey.

Turkish, Indian, Indonesian and Malaysian markets were shut for public holidays.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose eight basis points to 362 basis points, or 3.62 percentage points, according to JPMorgan Chase & Co.’s EMBI Global Index.

The Markit iTraxx SovX CEEMEA Index of eastern European, Middle East and Africa credit-default swaps added one basis point to 250.

--With assistance from Jason Webb in London and Irene Shen in Shanghai. Editors: Marie-France Han, Brendan Walsh

To contact the reporter on this story: Tal Barak Harif in New York at tbarak@bloomberg.net; Belinda Cao in New York at Lcao4@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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