Emerging Stocks Advance Most in 5 Weeks on Korea, U.S. Economy

Emerging-market stocks rose, pushing the benchmark index to its biggest rally in five weeks, after South Korean consumer confidence increased and growth in the U.S. slowed, a sign the Federal Reserve may wait to raise rates.

The MSCI Emerging Markets Index gained 1.4 percent to 1,133.37 at 4 p.m. New York time, its biggest rally since April 20. South Korea’s Kospi Index (KOSPI) jumped 2.8 percent, the most since June 2009. Brazil’s Bovespa rose 1.1 percent as a report showed unemployment declined in April. The real strengthened 0.9 percent against the dollar.

The U.S. economy expanded 1.8 percent last quarter, according to Commerce Department figures from Washington today. The rise in gross domestic product fell short of the median forecast of economists surveyed by Bloomberg, which called for a 2.2 percent increase. Greek, Spanish and Portuguese bonds rose after the head of the European Union’s bailout fund said the region has found the “right response” to its debt crisis.

“Modest growth in the U.S. isn’t a bad scenario for emerging markets,” said Greg Lesko, who helps manage about $800 million at Deltec Asset Management in New York. Developing nations might benefit from a slower pace of future rate increases in the U.S., he said.

The MSCI emerging-market index has declined 1.6 percent this year amid growing concern that the global expansion will slow as developing nations raise interest rates and Europe’s debt crisis worsens. The 21-country gauge is valued at 11.04 times analysts’ 12-month profit estimates, down from 11.6 at the start of the year, data compiled by Bloomberg show.

‘Growth Story’

“The long-term growth story for emerging markets remains intact, and there are signs that the global economic recovery hasn’t faltered,” said Fitz Aclan, who helps manage about $13 billion at Banco de Oro Unibank Inc. in Manila.

South Korea’s consumer sentiment index rose to 104 this month from 100 in April, while strategists at Credit Suisse Group AG and Citigroup Inc. said the nation’s stocks will advance on improved earnings.

South Korea saw the strongest upgrades of earnings forecasts within the region in May, Credit Suisse analysts led by Sakthi Siva wrote in a report dated yesterday, advising investors to buy the nation’s equities on “dips.” The Kospi may rise to 2,350 by the end of the year, Citigroup analysts led by Michael Chung said in a report. It closed at 2,091.91 today.

Kia Motors Corp. (000270), South Korea’s second-biggest carmaker, surged 6.7 percent after Moody’s Investors Service placed the company’s Baa3 issuer rating under review for a possible upgrade. Hyundai Motor Co. (005380), the nation’s largest automaker, advanced 5.6 percent.

Yield Spreads

India’s Bombay Stock Exchange Sensitive Index rose 1.1 percent after Tata Steel Ltd. posted a better-than-expected 72 percent increase in fourth-quarter profit. Russia’s Micex Index (INDEXCF) slipped 0.5 percent as oil retreated.

China’s Shanghai Composite Index slipped 0.2 percent, falling for a sixth day in the longest stretch of losses since July, on concern monetary tightening measures are slowing the economy and making it harder for small companies to borrow money.

Russia’s Micex Index retreated for the first time in three days as OAO Lukoil, Russia’s second-largest oil producer, slid 1 percent. Crude declined 1.1 percent to $100.23 a barrel in New York trading.

Unemployment in Brazil, Latin America’s biggest economy, fell to 6.4 percent in April, from 6.5 percent the previous month. Itau Unibanco Holding SA, Latin America’s biggest bank by market value, rose the most in two months, leading gains by companies that depend on credit growth. Souza Cruz SA, Brazil’s biggest tobacco company, gained after it was raised to “overweight” at JPMorgan Chase & Co. Retailer Lojas Renner SA jumped after it was raised to “overweight” at Morgan Stanley.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries widened seven basis points, or 0.07 percentage point, to 314, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporter on this story: Ian C. Sayson in Manila at isayson@bloomberg.net

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

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