Bloomberg News

Emerging Stocks Advance as China Signals End to Rate Increases

November 02, 2011

Oct. 26 (Bloomberg) -- Emerging-market stocks gained for a fourth day after China’s prime minister signaled interest-rate increases may be ending, raising speculation that demand for commodities from the world’s second-largest economy will rise.

The MSCI Emerging Markets Index added 0.3 percent to 958.10 at 11:12 a.m. in New York, poised for the highest close since Sept. 16. The Bovespa rose 0.5 percent in Sao Paulo as Vale SA and other commodities producers gained. The Hang Seng China Enterprises Index increased 1.9 percent in Hong Kong and South African stocks jumped to a three-month high. Copper futures for December delivery rose 3.9 percent to a four-week high on the Comex in New York.

“China is providing most of the visible growth in emerging markets, and a signal that it’s at the end of raising rates will be a very positive development,” said Rico Gomez, who helps manage $1.5 billion at Manila-based Rizal Commercial Banking Corp. “Much of the malaise in the market in the past couple of months was driven by Europe’s debt crisis and everyone’s looking at what actions the region will take to ease this uncertainty.”

Chinese officials will make adjustments at a “suitable time and by an appropriate degree” and will maintain “reasonable” growth in money supply, Premier Wen Jiabao said during a visit to Tianjin, according to a statement published late yesterday on the government’s website. The government will continue to make tackling inflation a top priority, Wen said.

Interest Rates

Policy makers from China to South Korea have refrained from raising rates in recent weeks to gauge whether slowing economic growth will dissipate price pressures. In India, the central bank yesterday boosted rates for a 13th time since the start of 2010 and signaled it’s nearing the end of its tightening.

Russia’s Micex index rallied 2.6 percent, rebounding from its biggest drop in a week and heading for the highest level in a month on speculation China will boost the economy of the world’s second-biggest crude consumer.

Crude oil for December delivery fell 1.6 percent to $91.70 a barrel in New York after the U.S. Energy Department said stockpiles gained 4.74 million barrels last week. Inventories were forecast to gain 1.48 million barrels, according to the median of 12 analyst estimates in a Bloomberg News survey.

South Africa’s FTSE/JSE Africa All Share Index gained for a fourth day, headed for the highest close since July 25. The gauge climbed 1 percent as the prices of gold and platinum, which make up about 20 percent of the country’s export earnings, increased for a fourth day.

European Deadlock

European Union talks with banks on bondholder losses as part of a second Greek rescue package are deadlocked and have been suspended, an EU official said. The EU is seeking voluntary participation by banks, though a forced solution can’t be ruled out, the official said in Brussels today, asking not to be identified because the talks are private.

European leaders are holding the 14th crisis summit in 21 months to discuss Greece’s second bailout, the recapitalization of banks and strengthening the 440 billion-euro ($612 billion) rescue fund into a more potent weapon. A finance ministers’ meeting originally scheduled to precede the summit was canceled.

“With the cancellation of the finance ministers’ meeting, there are worries that the results of the summit may fall short of expectations and weaken risk appetite globally,” emerging- market strategists at BNP Paribas SA led by London-based Bartosz Pawlowski wrote in a report today.

Currencies Drop

Most emerging-market currencies dropped against the dollar. The Hungarian forint retreated 2.2 percent and the Czech koruna fell 1.1 percent. The Turkish lira rose 0.7 percent.

Chile’s Lan Airlines and Brazil’s Tam SA rallied on news that Pal Airlines, a Chilean passenger and charter carrier, will drop all legal actions in Chile seeking to block Lan’s takeover of Tam. Lan, Latin America’s largest airline by market value, gained 2.2 percent in Santiago, heading to the highest close in a month. Tam, Brazil’s biggest airline by the same measure, gained 2.8 percent in Sao Paulo.

The benchmark ISE National 100 Index retreated 1.4 percent after Turkey’s central bank announced a move to higher funding costs for banks. Governor Erdem Basci said he would shift lending at the main one-week repo rate to the overnight rate that costs twice as much.

The MSCI emerging-markets index has rallied 15 percent since touching a 25-month low on Oct. 4. The rally cut the measure’s loss this year to 17 percent. The gauge is valued at 10.2 times estimated earnings, compared with the four-year average of 12.2 times, according to data compiled by Bloomberg. The MSCI World index is valued at 11.8 times estimated earnings.

ETF Inflow

Emerging-market ETFs received $1.5 billion in October, the most in six months, TrimTabs said in a report dated yesterday, citing their own data. Emerging-market ETFs took in an average $1.4 billion monthly in the “two strong bull years” after the March 2009 low, TrimTabs said.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell nine basis points, 0.09 percentage point, to 399, according to JPMorgan Chase & Co.’s EMBI Global Index.

--With assistance from Bloomberg News in Shanghai and Ian Sayson in Manila. Editors: Marie-France Han, Brendan Walsh

To contact the reporters on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net; Ksenia Galouchko in New York at kgalouchko1@bloomberg.net

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


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