Emerging Stocks Rise on China Lending, Europe Debt Speculation

Emerging-market stocks rose, with the benchmark index posting its biggest two-day gain in two weeks, on speculation China is relaxing lending curbs and new governments in Greece and Italy will help contain Europe’s debt crisis.

The MSCI Emerging Markets Index climbed 0.6 percent to 976.86 as of 4:53 p.m. in New York. South Korea’s Kospi Index (KOSPI) and Taiwan’s Taiex Index each rose more than 2 percent. Poland’s benchmark gauge climbed as much as 3.2 percent following a holiday on Nov. 11. Russia’s Micex declined, erasing earlier gains. Brazil’s Bovespa dropped 0.5 percent.

Chinese officials said over the weekend China’s economy is heading for a “soft landing” as growth slows. Prime Minister Lucas Papademos took charge as head of an interim Greek government and Mario Monti, former European Union commissioner, agreed to be Italy’s new leader following the resignation of Prime Minister Silvio Berlusconi. Monti could announce his new cabinet tomorrow. Antonio Di Pietro, who leads the Italian Values Party, Lars Feld, an economic adviser to German Chancellor Angela Merkel, said it would be a mistake for the European Central Bank to start printing money to help contain the region’s debt crisis.

“The global risk factors continue to be quite severe,” Benoit Anne, head of emerging-markets strategy in London at Societe Generale SA, said in a phone interview. “The Italian bond auction in Europe this morning was not a cause for celebration. We could have hoped for much stronger results. Emerging market equities are perhaps doing better, but to me they don’t reflect the magnitude of global risk sentiment.”

UBS Prediction

An 18 percent climb for MSCI’s developing-nation index since Oct. 4 has pared this year’s losses to 15 percent, compared with a 6.7 percent drop in the MSCI World (MXWO) Index. The emerging-markets gauge trades at 10.5 times estimated earnings, compared with 12 times for the MSCI World, according to data compiled by Bloomberg.

Emerging-market equities may rise 13 percent in 2012, according to UBS AG, which said any gains would depend on the “normalization of the equity risk premium.” Most favored countries include China, India and Brazil, the brokerage said in a report.

China’s stocks rose the most in three weeks as investors speculated the government is relaxing lending curbs to stem an economic slowdown. Chinese President Hu Jintao pledged to boost imports as the world’s second-biggest economy heads for what the top Chinese International Monetary Fund official said was a successful downshift from inflationary growth.

‘Soft Landing’

IMF Deputy Managing Director Zhu Min and National Economic Research Institute Director Fan Gang told the Asia Pacific Economic Cooperation forum in Honolulu that the economy was heading for a “soft landing ” as growth slows. They cited lower inflation and less bad debt at banks, and what Fan said were timely measures to avoid a property market bubble.

The Hang Seng China Enterprises Index in Hong Kong jumped 2.8 percent. Huaneng Power International Inc. (902), the nation’s biggest power producer, added 2.8 percent in Hong Kong after the China Securities Journal said the government may allow power companies to increase prices as inflation eases. BYD Co., the Chinese maker of the E6 electric car, surged 26 percent in Hong Kong. China will lift license-plate and traffic restrictions on new-energy vehicles in some major cities, the Xinhua News Agency reported.

China Gas Holdings Ltd. (384), a supplier of piped gas on the mainland, rallied 14 percent after saying an independent investor is keen to buy a “substantial stake” in the company.

Brookfield, Banco do Brasil

Brookfield Incorporacoes SA, Brazil’s fourth-largest real- estate company by revenue, declined 3.7 percent after it reported third-quarter net income of 108 million reais ($61.1 million), according to a regulatory filing. It was expected to post a profit excluding some items of 135.3 million reais, according to the average estimate of four analysts surveyed by Bloomberg.

Brazilian bank stocks rose after the government loosened restrictions on consumer lending to shore up growth in Latin America’s largest economy. Banco do Brasil SA (BBAS3) advanced as much as 4.6 percent, and Banco Bradesco SA gained as much as 3 percent.

Hungary’s Bux Index fell 2.8 percent, led by OTP Bank Plc (OTP), after Standard & Poor’s and Fitch Ratings indicated the country’s sovereign credit grade may be cut to junk as early as this month. The forint weakened against the euro.

“There is now a risk of further sell-off in forint assets, especially if the EU backdrop deteriorates,” Societe Generale’s Anne said.

Emerging-Market Currencies

Most emerging-market currencies tracked by Bloomberg weakened against the dollar. The forint dropped 2.5 percent while the Polish zloty fell 1.5 percent. The South Korean won rose 0.3 percent.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell one basis point, or 0.01 percentage point, to 395, according to JPMorgan Chase & Co.’s EMBI Global Index.

The Markit iTraxx SovX CEEMEA Index of eastern European, Middle East and Africa credit-default swaps rose nine basis points to 312, according to data provider CMA.

To contact the reporter on this story: Ksenia Galouchko at kgalouchko1@bloomberg.net Saeromi Shin in Seoul at sshin15@bloomberg.net Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net

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

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