Emerging-market stocks rose to a five-week high after the Federal Reserve said it will extend its monetary stimulus program and German Chancellor Angela Merkel discussed bond purchases to address Europe’s debt crisis.
The MSCI Emerging Markets Index (MXEF) gained for a fourth day, adding 0.5 percent to 948.27 by the close in New York, the highest since May 14. Information technology companies rose as SK Hynix Inc., the world’s No. 2 computer-memory chipmaker, surged in Korea and shares of E Ink Holdings Inc. (8069) swelled in Taiwan. LLX Logistica SA (LLXL3) gained 6.1 percent in Brazil.
The Fed today said it plans to extend its Operation Twist program to replace short-term bonds with longer-term debt by $267 billion through the end of 2012 to reduce unemployment and protect the expansion. The statement was followed by Merkel’s announcement that bond purchases by the European bailout fund may be a possibility. German policy makers had been opposed to such use of the fund even as Spanish 10-year bond yields reached a record high earlier this week.
“The Fed statement probably met the minimum expectation because a lot of investors were holding out for the possibility of additional stimulus,” Nick Chamie, head of global foreign- exchange strategy at Royal Bank of Canada in Toronto, said by phone today. “Merkel’s comments were a bid for optimism because it showed she is open to increasing resources to slow a vicious cycle of increasing risks.”
Europe’s Debt Crisis
More than $5 trillion has been erased from global equities since March amid concern economic growth is slowing in the U.S. and China, and as Europe’s debt crisis intensified with Spain’s borrowing costs rising to a record.
Euro-area leaders at the G-20 summit in Mexico pledged to take “all necessary policy measures” to defend the currency union and to spur growth and cut budgets in Europe.
Europe is China’s biggest export market, making up about 18 percent of the nation’s overseas sales, according to Shenyin & Wanguo Securities Co. The European Union is also India’s largest trading partner, accounting for 17.2 percent of the nation’s exports in the six months ended September 2011, according to data from India’s commerce ministry. The euro area buys about 22 percent of South Africa’s exports, according to government data.
The MSCI Emerging Markets gauge has advanced 3.5 percent this year, compared with a 4 percent gain in the MSCI World Index. (MXWO) Shares in the developing-nation index are trading at 10.2 times estimated earnings, compared with the MSCI World’s multiple of 12.1, according to data compiled by Bloomberg.
LLX Logistica, the port company controlled by Brazilian billionaire Eike Batista, surged in Sao Paulo. Brazil’s Bovespa (IBOV) fell 0.1 percent after earlier gaining as much as 0.7 percent. Itausa - Investimentos Itau SA, the parent company of the country’s biggest bank, declined 1.6 percent.
Russia’s Micex Index sank 1.1 percent in Moscow, falling from the highest level since May 11, as OAO RusHydro tumbled 7.6 percent and OAO Gazprom lost 0.8 percent. Russia’s natural-gas export monopoly said exports to Europe fell between January and May from a year earlier.
The ISE National 100 Index rose 0.2 percent to the highest since April 30 in Istanbul after Moody’s Investors Service lifted the country’s rating to a level below investment grade, citing a “significant” improvement in public finances and policies to cut the current account deficit.
Turkey’s debt was upgraded one step to Ba1, according to an e-mailed statement. The agency cited well-capitalized banks in reaffirming the nation’s creditworthiness.
Taiwan’s Taiex Index (TWSE) rose 0.8 percent and South Korea’s Kospi index added 0.7 percent.
South Korea, Taiwan, the United Arab Emirate and Qatar failed to secure an upgrade at index provider MSCI Inc., which cited offshore currency concerns and market accessibility. Greece will be reviewed for possible reclassification to emerging market and Morocco to frontier, MSCI said today.
E Ink Holdings Inc. surged 6.7 percent in Taipei. The company’s sales will climb this year as demand for electronic paper display rises, the Economic Daily reported yesterday, citing Vice Chairman Felix Ho.
The extra yield investors demand to own emerging-market debt over U.S. Treasuries declined five basis points, or 0.05 percentage point, to 377, according to JPMorgan Chase & Co.’s EMBI Global Index.