Emerging-market stocks rose, driving the regional benchmark index to its longest streak of gains in five months, on speculation China’s interest-rate increases will promote lower-inflation economic growth.
The MSCI Emerging Markets Index advanced 0.7 percent to 1,203.47, bringing its rally in the past seven days to 5.7 percent. The Shanghai Composite Index gained 1.1 percent in the first day of trading after a four-day holiday weekend. Taiwan’s Taiex Index rose 1.7 percent and Turkey’s ISE National 100 Index (XU100) jumped 1.4 percent.
China’s rate-increase cycle is “coming close to an end” after the People’s Bank of China yesterday lifted key borrowing costs for the fourth time since October, Goldman Sachs Group Inc. wrote in a note to clients. European Central Bank President Jean-Claude Trichet indicated March 3 that policy makers may raise rates at their April meeting, which is tomorrow. The U.S. Federal Reserve is due to end its $600 billion bond buying program in June.
“There’s growing confidence in the growth prospects of emerging markets since the rate increases we have seen are gradual and not abrupt,” said Fitz Aclan, who helps manage about $13 billion at Banco de Oro Unibank Inc. in Manila. “Investors are building positions since emerging markets in the long run have better fundamentals and earnings growth than developed markets.”
The Taiwanese dollar appreciated 0.6 percent against the U.S. currency and South Korea’s won gained 0.3 percent. The ruble gained as much as 0.6 percent to its strongest level since 2008, and the Turkish lira rose 1.1 percent. Brazil’s real dropped 0.3 percent, the most out of 25 emerging market currencies tracked by Bloomberg, after Finance Minister Guido Mantega said Brazil will announce new measures to stem gains in the currency.
Japanese interest rates of nearly zero and a depreciating yen are fueling the carry trade, in which investors borrow in currencies of countries with low rates and invest the proceeds in higher-yielding assets, according to BNP Paribas SA.
“The weakness in the Japanese yen” has been “the overriding factor for most local currencies, which have continued their bullish run,” Elisabeth Gruie, an analyst at BNP Paribas in London, and colleagues wrote in a research note.
The Taiwanese dollar gained as much as 1.6 percent against the yen and the lira as much as 1.2 percent.
MSCI’s developing-nation stock index has rallied 10 percent since closing at a three-week low on March 17 as China’s manufacturing growth accelerated for the first time in four months, exports picked up from Malaysia and South Korea and unemployment dropped in the U.S. The rally has pushed the measure’s gain this year to 4.5 percent, narrowing its gap with the MSCI World (MXWO) Index of developed nations, which has advanced 5.3 percent.
Companies in MSCI Emerging Markets Index trade at 13.7 times estimated earnings, compared with 13 times for the MSCI World Index. Developing-nation equity funds attracted inflows of $2.6 billion in the week to March 30, the most since the period ended Jan. 5, according to data compiled by EPFR Global.
Industrial & Commercial Bank of China (601398) Ltd., the country’s biggest lender, climbed 1.8 percent in Shanghai trading as Barclays Plc and Citigroup Inc. said higher rates will increase lenders’ net interest margins. Policy markets yesterday lifted the benchmark one-year lending rate by a quarter point to 6.31 percent and the one-year deposit rate to 3.25 percent from 3 percent.
Banks also led Turkish and Hungarian stocks higher. Turkiye Garanti Bankasi AS (GARAN), Turkey’s largest lender by market capitalization, gained 2 percent. Budapest’s BUX Index rallied 3.2 percent after OTP Bank Nyrt., which accounts for 30 percent of the measure’s weighting, increased 5.2 percent.
The Bovespa stock index fell 1.2 percent, the most in three weeks, snapping a six-day advance, on concern potential government measures to stem currency gains will drive away foreign investors. Card-payment processors Cielo SA and Redecard SA both slipped more than 4 percent.
Taiwanese chipmakers were boosted after Dallas-based Texas Instruments Inc. (TXN), the biggest maker of analog chips, said it would pay $6.5 billion for National Semiconductor Corp. (NSM) Taiwan Semiconductor Manufacturing Co., the world’s largest contract chipmaker, gained 3.1 percent while United Microelectronics Corp. (2303) advanced 1.3 percent. Taiwanese markets were closed the previous two days for public holidays.
The Markit iTraxx SovX CEEMEA Index of eastern European, Middle East and Africa credit-default swaps eased 5 basis points to 180 points.
The difference between the return investors demand from emerging-market bonds and U.S. Treasuries fell 8 basis points to 246 at 5:06 p.m. New York time, according to the JPMorgan Chase EMBI+ Index.
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