Emerging Stocks Climb to Extend Best Start to Year Since 2001

Emerging-market stocks rose for a fourth day, extending the best start to a year since 2001, as economic data signaled an improved outlook for the U.S. and amid speculation China may ease lending curbs.

The MSCI Emerging Markets Index (MXEF) added 0.4 percent to 995.08 at the close in New York, bringing its increase this year to 8.6 percent, the best performance since an 11 percent gain during the same period in 2001. Brazil’s Bovespa rose for a fifth day, gaining 0.6 percent. Hungary’s BUX Index and the PX Index in Prague each climbed 1.9 percent. The Shanghai Composite Index gained 1 percent on the last day of trading before China’s Lunar New Year holidays.

U.S. existing home sales rose for a third month in December to the highest level since January 2011, data today showed, while a government report issued yesterday showed the number of Americans claiming jobless benefits fell to the lowest level since April 2008 last week. The Shanghai Securities News reported Chinese bank lending in the first quarter may rise from a year earlier.

“In the fourth quarter of last year you started to see a better patch of economic data coming out of the U.S.,” Ed Kuczma, who helps manage $35 billion at Van Eck Associates in New York, said by phone. “If you do get better than expected GDP growth in 2012, emerging markets should be a pretty substantial outperformer over developed markets.”

The MSCI gauge for emerging markets, which has rebounded after a 20 percent drop in 2011, is valued at 10 times estimated earnings. Stocks in developed countries have climbed 4.5 percent in 2012, recovering some of a 7.6 percent slump last year, and trade at a multiple of 12 times estimated earnings.

‘Surprise’ Rally

“While we expected market conditions to improve this year, we have been surprised by the speed and intensity of the rally,” Barclays Bank Plc strategists including Piero Ghezzi and Michael Gavin wrote in a report released today. “We do not think valuations are stretched and believe differing year-to- date performance suggests relative value opportunities.”

In 2001, the MSCI Emerging Markets Index rose as much as 14 percent to a high of 379.02 on Jan. 31. It ended the year 4.9 percent below its starting point.

The Bovespa (IBOV)’s five-day advance is its longest winning streak since the period ended Sept. 1. Cyrela Brazil Realty SA Empreendimentos e Participacoes led a rally among homebuilders after a report that Brazilian President Dilma Rousseff wants the central bank to keep lowering borrowing costs. Cyrela advanced 4 percent to a seven-month high.

Extra Yield

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell 9 basis points, or 0.09 percentage point, to 411 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.

The Shanghai Composite gained 3.3 percent this week on speculation slowing growth will prompt the central bank to relax monetary policies and that the government will take measures to support stocks. The measure has advanced 5.4 percent this year.

China’s central bank will let the nation’s five biggest banks increase first-quarter lending by as much as 5 percent from a year earlier, two people at state banks with knowledge of the matter said this week, declining to be identified because the move hasn’t been announced. Economic growth decelerated to the slowest pace in 10 quarters in the three months to Dec. 31 as Europe’s debt crisis curbed export demand.

To contact the reporters on this story: Benjamin Harvey in Istanbul at bharvey11@bloomberg.net; Zachary Tracer in New York at ztracer1@bloomberg.net.

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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