Bloomberg News

Emerging Market Stocks Advance on Bernanke’s Jackson Hole Speech

August 31, 2012

Emerging-market stocks advanced for the first time in six days as U.S. Federal Reserve Chairman Ben S. Bernanke said he would not rule out further measures to boost the economy.

The MSCI Emerging Markets Index (MXEF) rose 0.3 percent to 947.33, trimming its loss this month to 0.5 percent. Share gauges in Poland, Hungary and Turkey advanced more than 1 percent. Brazil’s Bovespa index slid for a third day as Centrais Eletricas Brasileiras SA (ELET6) fell the most in three months. Russian stocks retreated for a third day as OAO Lukoil, the nation’s second-largest oil producer, reported a drop in second-quarter profit.

Bernanke said additional asset purchases are an option as policy makers consider further steps to bring down an unemployment rate of more than 8 percent that he called a “grave concern,” in a speech to central bankers in Jackson Hole, Wyoming today. Spain delayed making a decision on seeking a European Union bailout for its banks while unemployment in the euro area rose to a record in July. The European central bank, led by Mario Draghi, will hold its next meeting on Sept. 6 in Frankfurt.

“The reading of the market is that there is a probability that there will be further stimulus from the Fed,” said Michael Ganske, head of emerging-market research at Commerzbank AG in London. “Investors are trying to read out every statement about possible support and that’s the reason for the rally in the equity market. In addition, the market is expecting ECB to be more detailed about their support for the region when they meet next week.”

EM ETF Gains

The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF tracking developing-nation shares, increased 1 percent. 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, slid 2.6 percent.

The Bovespa dropped 0.3 percent. Eletrobras, as Brazil’s largest power utility is known, tumbled 8.2 percent after Banco Itau BBA SA cut its ratings on utility stocks. Poland’s WIG 20 Index of stocks climbed 1.4 percent while Hungary’s BUX Index added 1.1 percent. Turkey’s ISE National 100 Index gained 1.8 percent.

Bernanke, speaking two weeks before the next meeting of the Federal Open Market Committee, repeated its last statement that the central bank “will provide additional policy accommodation as needed” to spur growth. Two rounds of large-scale asset purchases totaling $2.3 trillion have so far failed to reduce the jobless rate below 8 percent more than three years into the recovery.

Index Valuations

The developing nations’ gauge has advanced 3.4 percent this year, trailing an 8.2 percent jump by the MSCI World Index of developed nations. The emerging-markets index trades at 10.8 times estimated earnings, compared with 13 for the MSCI World, data compiled by Bloomberg show.

Russia’s Micex Index retreated 0.5 percent. Lukoil dropped 2 percent after saying profit fell 69 percent in the second quarter, missing analyst estimates, as oil prices declined faster than export taxes.

China Shipping Container Lines Co. (2866) slumped to a nine-month low in Hong Kong as BOCOM International Holdings Co. cut its stock estimate after the company reported a wider first-half loss this week. South Korea’s STX Pan Ocean Co. fell 4.7 percent after a measure of commodity shipping costs dropped to a six- month low. Samsung Electronics Co. (005930) rose 1.5 percent in Seoul after a Tokyo judge ruled the company’s smartphones and a tablet computer didn’t infringe on an Apple Inc. patent.

China Weakness

“While many agree that the worst phase of economic slowdown has passed, we’re still not seeing a clear recovery trend, with companies reporting slower profits,” Chu Moon Sung, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $28 billion, said by phone. “Hopes for more measures in the U.S. are still valid.”

The Hang Seng China Enterprises Index (VXEEM) of Chinese companies traded in Hong Kong dropped 0.7 percent to its lowest since July 26, as Macquarie Group Ltd. downgraded Chinese equities to neutral from overweight. The Shanghai Composite Index (SHCOMP) slipped 0.3 percent, capping a fourth straight month of losses. Malaysia is closed for a holiday.

Macquarie cut China equities to neutral, saying in a report dated yesterday that early economic and financial stability seen during the second quarter are being replaced by “disturbingly wide-seen weakness” in the economy. A neutral rating implies investors should hold the same proportion of Chinese shares as are represented in benchmark indexes.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries increased 1 basis point to 318, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporters on this story: Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net; Sridhar Natarajan in New York at snatarajan15@bloomberg.net

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


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Companies Mentioned

  • EEM
    (iShares MSCI Emerging Markets ETF)
    • $44.14 USD
    • 0.57
    • 1.29%
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