Emerging Stocks Rise to Two-Month High as China Data Fuels Policy Optimism

Emerging-market stocks rose, driving the benchmark index to a two-month high, after China’s gross domestic product expanded more than estimated and reports showed strength in the U.S. and German economies.

The MSCI Emerging Markets Index (MXEF) gained 2.2 percent to 972.35 at the close in New York, the highest since Nov. 14. The Shanghai Composite Index (SHCOMP) advanced 4.2 percent, the most since October 2009. Benchmark gauges in Russia, Poland and India rose more than 1 percent, as South Africa’s index hit a record high. The Bovespa gained for a second day in Sao Paulo.

China’s economy expanded 8.9 percent in the three months ended Dec. 31 from a year earlier, the statistics bureau said. Economists in a Bloomberg survey had forecast an 8.7 percent gain. Manufacturing in the New York region expanded in January at the fastest pace in nine months, and German investor confidence increased the most on record.

“The importance of a soft landing of the Chinese economy for asset prices in the world is hard to overestimate,” Slava Smolyaninov and Leonid Slipchenko at UralSib Capital in Moscow wrote in an e-mailed note to clients.

China relaxed lenders’ reserve requirements in December for the first time since 2008 as inflation slowed to a 15-month low and exports gained the least in two years amid Europe’s debt crisis.

Chinese Easing

“There’s speculation that the government will ease monetary policies such as cutting the reserve requirement ratio,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. “There are also high expectations that more direct measures to support stocks will be unveiled.”

Chinese equities trade for 9.4 times projected earnings, below the 9.9 multiple for the MSCI Emerging Markets index. Developed-nation shares are valued at 11.8 times earnings.

The Standard & Poor’s GSCI Index of 24 commodities climbed 1.2 percent.

Vale SA (VALE5), the world’s largest iron-ore producer, jumped 4.1 percent in Brazil after saying it will pay at least $6 billion of dividends this year. The benchmark Bovespa (IBOV) index rose 1.1 percent to a six-month high.

The WIG20 Index (WIG20) jumped 1.1 percent in Warsaw as KGHM Polska Miedz SA (KGH), Poland’s only copper producer, surged 3.6 percent.

The Micex Index (MICEX) rose 1.5 percent in Moscow and the FTSE/JSE Africa All Share Index (JALSH) gained 0.7 percent in Johannesburg, reaching a record.

Twenty-three of 25 emerging market currencies tracked by Bloomberg appreciated against the dollar. The Indian rupee strengthened 1.3 percent and the rand rose 1 percent. Argentina’s peso and Brazil’s real slipped 0.1 percent

The BSE India Sensitive Index (SENSEX), or Sensex, rose 1.7 percent to a five-week high as data from the markets regulator showed foreign funds had bought stocks for nine straight days, bringing net purchases to $559 million this year after pulling out $512 million in 2011.

Korean Inflows

South Korea’s Kospi Index (KOSPI) jumped 1.8 percent as overseas investors bought more Korean shares than they sold for a sixth day, building on net purchases of $995 million this month through yesterday, exchange data showed.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell three basis points, or 0.03 percentage point, to 437, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporters on this story: Gan Yen Kuan in Kuala Lumpur at ykgan@bloomberg.net; Zachary Tracer in New York at ztracer1@bloomberg.net.

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

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