Emerging-market stocks posted their best start to a year since 2001 after European countries agreed to tighter budget controls and as policy makers from Brazil to the Philippines cut borrowing costs to spur growth.
The MSCI Emerging Markets Index gained 1.3 percent to 1,019.39. The index has risen 11 percent this month, the strongest January in 11 years, following a 20 percent drop in all of 2011. Brazil’s Bovespa index climbed 11 percent in its best January since 2006. Benchmarks in Argentina, Hungary and Peru have climbed more than 11 percent this month.
European Union leaders, meeting in Brussels yesterday, completed a fiscal-discipline treaty allowing for sanctions on high-deficit states and requiring members to enact laws limiting budget shortfalls. Asian central banks from the Philippines to Thailand cut interest rates this month, joining emerging nations like Brazil and Chile as slower inflation allows policy makers to ease monetary policy and insulate their economies.
“The end of the emerging markets’ underperformance is not far from here,” Bob Doll, chief equity strategist at Blackrock Inc., which oversees $3.51 trillion, said in an interview on Bloomberg TV. Lower interest-rates in developing countries “will set the stage for bottoming out of growth, the resumption of growth and equity market outperformance,” said Doll, adding that he is looking to raise emerging-market stocks to “overweight” from “neutral.”
The gains in the MSCI Emerging Markets benchmark outpaced the 4.4 percent rise in the Standard & Poor’s 500 Index in January. The MSCI Emerging Markets Index (MXEF) trades at 10.2 times analysts’ earnings estimate for member companies, compared with 12.5 for the U.S. measure.
The Bovespa had its best start to a year since 2006, with Petroleo Brasileiro SA (PETR4), the nation’s largest oil producer, up 14 percent in the month. Brazil’s central bank has lowered the target Selic rate by two percentage points to 10.5 percent since August as a way to bolster economic growth.
In Russia, the Micex Index added 1.2 percent today, extending its advance to 8 percent in January. OAO Mechel (MTLR), Russia’s biggest producer of steelmaking coal, climbed 24 percent in Moscow this month, while oil company OAO Surgutneftegas (SNGS) advanced 12 percent following a rally in commodity prices.
State Bank of India rose 3.8 percent today after the lender approved selling stock to the government to bolster capital by 79 billion rupees ($1.6 billion). The shares have surged 27 percent this month.
In Taiwan, global funds bought $1.7 billion more stocks than they sold in January, the most in three months, exchange data showed. Foxconn Technology Co. jumped 6.9 percent to the highest level since Aug. 5 on speculation Apple Inc. may use metal casings for its next generation iPhone, benefiting companies including Foxconn. Cheng-Kuang Liu, a Taipei-based Foxconn spokesman, declined to comment.
The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell five basis points, or 0.05 percentage point, to 411 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index. The so-called spread has narrowed 14 basis points this month.
Hungary’s forint led a rally in emerging-market currencies this month on speculation the indebted nation is moving closer to obtaining a bailout from the International Monetary Fund and the European Union. Hungary will probably reach agreement on financial aid by the end of April, Renaissance Capital said in a report today. The forint strengthened 7.8 percent in January.
India’s rupee gained 7.3 percent, completing a record monthly gain, while Mexico’s peso rose 6.8 percent as foreign investors seek alternatives to near zero interest-rates in the U.S.