Emerging Stocks Reach Three-Month High as China Inflation Slows

Emerging-market stocks rose to a three-month high after U.S. jobless claims unexpectedly fell and as China’s inflation cooled in July, providing policy makers more room to stimulate the world’s second-largest economy.

The MSCI Emerging Markets Index (VXEEM) climbed 0.9 percent to 979.28, gaining for a fifth day to the highest since May 10. South Korea’s Kospi (KOSPI) index jumped 2 percent and Warsaw’s WIG20 gauge advanced 2.2 percent. Brazil’s Bovespa stock index fell with clothing retailer Lojas Renner SA and steelmaker Usinas Siderurgicas de Minas Gerais SA among the biggest losers. Circuit-board maker Zhen Ding Technology Holding Ltd. (4958) rallied 7 percent in Taipei.

China’s consumer prices increased 1.8 percent last month, compared with a 2.2 percent gain in June. The Bank of Korea said growth momentum is “slackening,” fueling optimism the central bank will cut borrowing costs later this year after keeping its interest rate unchanged today. Fewer Americans filed applications for unemployment benefits last week, with jobless claims unexpectedly dropping by 6,000 to 361,000 in the week ended Aug. 4, Labor Department figures showed today in Washington.

“As news gets worse in China, it provides more of an excuse for any kind of Chinese stimulus,” Michael Gayed, chief investment strategist at Pension Partners LLC overseeing about $160 million in assets, said by phone from New York. “Any kind of improving data from the U.S. has helped undo the bearish sentiment and it reflects in rising stocks globally. This has been a year purely of psychology.”

EM ETF Gains

The IShares MSCI Emerging Markets Index (MXEF) exchange-traded fund, the ETF (EEM) tracking developing-nation shares, increased for a fifth day, climbing 0.4 percent. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, fell 0.7 percent.

The Bovespa dropped 0.3 percent, with Lojas Renner sliding 3.5 percent, the most in a week. Shares of Usiminas, as the Belo Horizonte, Brazil-based company is known, dropped 2.8 percent.

The median forecast of 43 economists surveyed by Bloomberg News called for an increase in U.S. jobless claims to 370,000.

Technology, consumer discretionary and industrial companies led gains in the emerging-markets index. The gauge has advanced 6.9 percent this year, compared with an 8.1 percent advance by the MSCI World Index (MXWO) of developed countries. The emerging- markets measure trades at 10.8 times estimated earnings, compared with 13 for the developed-nations index, data compiled by Bloomberg show.

South Korea, Taiwan

South Korea’s Kospi jumped 2 percent, the most in Asia, and Taiwan’s Taiex Index added 1.6 percent. The Shanghai Composite Index rose for a fifth day, the longest winning streak since February. Abu Dhabi’s benchmark gauge increased 0.8 percent, advancing to its highest since April 10, after Aldar jumped as much as 4.1 percent on net income climbing to 418 million dirhams ($114 million) from 127 million dirhams a year earlier.

First Gulf Bank PJSC (FGB), the lender controlled by Abu Dhabi’s ruling family, rallied 3.7 percent, the most in five months after a 14 percent jump in second-quarter profit buoyed the company’s outlook this year.

Taiwan’s Zhen Ding Technology rose the most since its December trading debut, helping a gauge of technology stocks to post the strongest gain among the MSCI Emerging Markets’ 10 industry groups.

Cooperation Deal

Taiwanese and Chinese officials meeting today are due to sign an investment protection pact and a customs cooperation agreement after an eighth round of talks.

China Yurun Food Group Ltd. (1068) jumped the most in a week, surging 6.9 percent in Hong Kong, after Kerry Group disclosed a 5.05 percent stake in the company, up from 5 percent reported last week.

GS Engineering & Construction Corp. (006360) rallied 3.4 percent, leading South Korean builders higher. Mirae Asset Securities Co., a Seoul-based brokerage, climbed 3.7 percent. The central bank left its benchmark seven-day repurchase rate unchanged at 3 percent. The decision was predicted by 10 of 16 economists surveyed by Bloomberg News, while the rest forecast a 25 basis point reduction.

“The rate pause today raises the possibility of a cut next month,” said Sun Yoo, an economist at Woori Investment & Securities Co. in Seoul.

Bharti Airtel Ltd. (BHARTI), India’s largest mobile operator, dropped 6.4 percent to the lowest in nearly six years after brokerages including Goldman Sachs Group Inc. downgraded the company on concern about rising expenses. Mahindra & Mahindra Ltd. (MM), India’s biggest maker of sport-utility vehicles, added 2.8 percent, extending yesterday’s 3.7 percent advance after earnings beat estimates.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell 1 basis point, or 0.01 percentage point, to 314 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporters on this story: Chris Kay in Abuja at ckay5@bloomberg.net; Sridhar Natarajan in New York at snatarajan15@bloomberg.net

To contact the editors responsible for this story: Darren Boey at dboey@bloomberg.net; Gavin Serkin at gserkin@bloomberg.net

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