Bloomberg News

Emerging Stocks Rally Following Biggest Drop in Almost Two Weeks

December 07, 2011

Dec. 7 (Bloomberg) -- Emerging-market stocks advanced after the biggest drop in two weeks on speculation European leaders will agree on steps to contain the region’s debt crisis and central banks will further ease monetary policies.

The MSCI Emerging Markets Index rose 0.9 percent to 962.50 as of 7:53 a.m. London time. It dropped 1.3 percent yesterday, the most since Nov. 23. The Hang Seng China Enterprises Index gained 2.2 percent in Hong Kong. Taiwan’s Taiex Index advanced 1.1 percent, South Korea’s Kospi Index rose 0.9 percent and the BSE India Sensitive Index, or Sensex, climbed 0.8 percent.

Standard & Poor’s warning this week that it may cut ratings of euro-zone countries will spur European leaders to ratchet up efforts at a summit starting tomorrow, German Finance Minister Wolfgang Schaeuble said yesterday. Australia’s central bank cut its benchmark interest rate yesterday, while data on Dec. 9 may show China’s inflation rate dropped to a 13-month low.

“Sentiment among emerging markets is about easing monetary policies to support domestic consumption and progress towards an agreement regarding the euro zone,” said Laurentia Amica Darmawan, a fund manager at Jakarta-based PT First State Investments Indonesia, which manages about $341 million in assets. “There’s anticipation for more rate cuts after Australia” lowered its interest rate.

MSCI’s emerging-market index has fallen 16 percent this year, compared with a 6.4 percent drop in the MSCI World Index, amid concerns of faltering growth in the U.S., Europe and China. Companies in the developing-nation index are trading at 10.3 times estimated earnings, lower than the 12.2 average for the gauge of developed countries.

‘Stronger Firewall’

A German-French push for closer economic ties in Europe won the backing of U.S. Treasury Secretary Timothy F. Geithner, who urged governments to work with central banks to erect a “stronger firewall” to end the debt crisis. Euro-area leaders are considering allowing the single currency’s temporary bailout fund to run concurrently with the European Stability Mechanism as this would allow almost double the financial firepower of the ESM to be deployed, the Financial Times Deutschland reported.

The European Central Bank will probably cut the benchmark interest rate by a quarter point to 1 percent when policy makers meet tomorrow, according to 58 economists in a Bloomberg survey. The Reserve Bank of Australia lowered its benchmark rate yesterday for a second straight month to 4.25 percent.

Samsung Electronics Co., which earned about a fifth of last year’s sales from Europe, rose 1.2 percent in Seoul trading, the biggest boost to the emerging-market index. Hon Hai Precision Industry Co., which generated about 29 percent of last year’s sales from Europe, advanced 1.6 percent in Taipei.

China Inflation

Industrial & Commercial Bank of China Ltd., the nation’s biggest lender, rose 2.9 percent in Hong Kong on speculation slowing inflation will prompt the government to ease monetary policies. China Merchants Bank Co. gained 3.2 percent.

China’s inflation rate dropped to a 13-month low of 4.5 percent in November and producer-price gains slowed to 3.4 percent, the least since 2009, according to the median estimates of economists surveyed by Bloomberg before data due on Dec. 9. Inflation reached a three-year high of 6.5 percent in July.

China’s equities will rally in the first half of 2012 as the stock market is among the cheapest in Asia, Michael Kurtz, chief Asian equity strategist at Nomura Holdings Inc., told reporters in Kuala Lumpur today. He recommends investors favor financial, energy and material companies in a market that trades 33 percent below its long-term average.

Battery Business

State Bank of India, the country’s biggest lender, rose 1.4 percent to the highest level since Nov. 8. The Sensex had its steepest rally since July 2009 last week on expectation the central bank may decide at its next meeting on Dec. 16 to pause a record series of interest-rate increases as Asia’s third- largest economy slows.

LG Chem Ltd., South Korea’s biggest chemical maker, fell 5.6 percent after the Maeil Business Newspaper reported the company plans to spin off its battery business in the first half of next year. LG Chem said it hasn’t made a decision. Indiabulls Real Estate Ltd. plunged 14 percent in Mumbai after the developer spun off its power unit into another company.

--Editors: Darren Boey, Richard Frost

To contact the reporter on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net

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


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