Bloomberg News

Emerging Stocks Rise to Two-Week High on China Stimulus Outlook

July 19, 2012

Emerging-market stocks climbed to a two-week high on prospects policy makers in China and the U.S. will take more steps to bolster economic growth.

The MSCI Emerging Markets Index (MXEF) advanced 1.1 percent to 941.13 in New York, the highest close since July 6. Petroleo Brasileiro Sa (PETR4) gained in Sao Paulo after oil rose. Taiwan Semiconductor Manufacturing Co. (2330) gained the most in seven weeks before the company reported its highest profit in six quarters. Bank of Communications Co. led Chinese lenders higher on bets of further cut to the reserve-ratio requirement.

China’s Premier Wen Jiabao will probably decide to cut banks’ reserve requirements and encourage lending as the cabinet meets to discuss efforts to revive growth, the swap market indicates, injecting liquidity into the system as the absence of robust growth in the developed world weights on markets globally. More Americans than forecast filed first-time claims for unemployment last week while sales of previously owned U.S. homes unexpectedly fell in June to an eight-month low.

“If there is a greater slowdown in the developed world, you have more room for policy action in the emerging market space,” Tim Hall, who manages about $700 million at Deltec Asset Management, said by phone from New York. “Central banks in these markets have a lot of firepower because of which you have a potential for pick up in the economies in the second half of the year.”

Oil Climbs

MSCI’s index of developing nations, which has gained 2.7 percent this year, trades at a multiple of 10.2 times estimated earnings, compared with 12.5 for the MSCI World Index of developed nations, which has advanced 5.5 percent in 2012, according to data compiled by Bloomberg.

The IShares MSCI Emerging Markets Index exchange-traded fund, the ETF tracking developing-nation shares, rose 0.9 percent to $39.17. The Chicago Board Options Exchange Emerging Markets ETF (EEM:US) Volatility Index, a measure of options prices on the fund and expectations of price swings, declined for a third day, falling 0.8 percent to 23.92.

Brazil’s Bovespa (IBOV) Index climbed 1.4 percent to the highest level since July 6, as Petrobras gained 1.5 percent. Russia’s Micex (INDEXCF) Index advanced 0.6 percent, led by a 1.2 percent gain in OAO Gazprom, the world’s largest natural-gas producer.

Oil advanced to the highest level in two months on rising concern that the Middle East will lose stability, disrupting supplies from a region responsible for about 30 percent of world production.

Record Low

Purchases of existing home sales in the U.S. decreased 5.4 percent to a 4.37 million annual rate last month from a revised 4.62 million in May, figures from the National Association of Realtors showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 4.62 million pace.

Applications for jobless benefits increased by 34,000 to 386,000 in the week ended July 14, Labor Department figures showed today.

Bond yields in emerging markets are falling to record lows as inflation tumbles compared with benchmark interest rates, providing policy makers with more opportunities to lower borrowing costs. Asian economies may need to ease monetary and fiscal policies further as Europe’s debt turmoil crimps global growth, the Asian Development Bank said in a report today.

’Weak Growth’

“A prolonged period of weak growth and financial fragility in advanced economies highlight the urgent need for internationally coordinated policy responses and greater levels of regional cooperation,” the bank said in the report.

The cost to lock in the three-month Shanghai interbank offered rate for a year was near a two-year low according to data compiled by Bloomberg, signaling a further cut in banks’ reserve requirements may be imminent.

Cnooc Ltd. (883), China’s No. 1 offshore oil producer, rose to the highest in more than two months. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies listed in Hong Kong jumped 2.4 percent, the most since June 29, leading gains among emerging-market gauges. South Korea’s Kospi index gained 1.6 percent and Taiwan’s Taiex (TWSE) Index climbed 1.4 percent.

“Investors haven’t given up that China will do everything to ensure its own economic recovery,” said Jonathan Ravelas, chief market strategist at Manila-based BDO Unibank Inc. “The housing data is a promising sign that U.S. economic activity is picking up and supports the outlook that the U.S. economy is in a slow phase and not in a fragile state.”

Ruble Gains

A gauge of technology companies led gains in all 10 industry groups in the MSCI Emerging Markets Index. International Business Machines Corp. (IBM:US), the world’s biggest computer-services provider, boosted its full-year earnings forecast yesterday while Qualcomm Inc., the largest seller of mobile-phone semiconductors, said quarterly results showed consumers in emerging markets are trading up to next-generation handsets, lifting profitability.

The ruble gained for an eighth day against the central bank’s target euro-dollar basket, its longest streak of advances since December 2010, as crude rallied on bets the global economic recovery is on track.

Taiwan Semiconductor climbed 3.6 percent, the most since May 31. The company’s second-quarter profit rose 16 percent from a year earlier to NT$41.8 billion ($1.4 billion) as demand for chips used in smartphones boosted sales. Bank of Communications, mainland China’s fifth-largest bank by value, increased 3.3 percent in Hong Kong, the steepest gain since June 29.

China Lending

China’s four biggest banks extended about twice as many new loans in the first half of July compared with the same period last month, the Shanghai Securities News reported earlier.

Maruti Suzuki India Ltd. (MSIL), India’s biggest carmaker, plunged 8.7 percent, making it the worst performer in the BSE India Sensitive Index, which rose 0.5 percent. One person died and more than 70 management workers were injured after violence erupted at the company’s factory at Manesar near New Delhi, Gurgaon Police Commissioner K.K. Sindhu said in a telephone interview today.

Woori Finance Holdings Co. led South Korean banks lower as the country’s antitrust agency widens its probe of key money- market rate collusion.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell five basis points, or 0.05 percentage point, to 345, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporters on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net; Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editors responsible for this story: Tal Barak Harif at tbarak@bloomberg.net; Richard Frost at rfrost4@bloomberg.net


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Companies Mentioned

  • EEM
    (iShares MSCI Emerging Markets ETF)
    • $44.98 USD
    • -0.11
    • -0.24%
  • IBM
    (International Business Machines Corp)
    • $195.53 USD
    • -0.26
    • -0.13%
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