Emerging Stocks Climb Most in Four Weeks on ECB Bond Plan

Emerging-market stocks rose the most in four weeks after European Central Bank President Mario Draghi said policy makers agreed to an unlimited bond-purchase program, easing concern the region’s debt crisis will curb exports from developing nations.

The MSCI Emerging Markets Index advanced 1.2 percent to 950.45 in New York, the biggest gain since Aug. 6. Brazil’s Bovespa climbed 2.6 percent to a one-week high as oil companies Petroleo Brasileiro SA (PETR4) and OGX Petroleo & Gas Participacoes SA followed crude higher. Russia’s Micex Index (INDEXCF) jumped 2.4 percent and Mexico’s IPC (MEXBOL) index added 1 percent as Industrias CH SAB (ICHB), the country’s largest steelmaker, rose to an all-time high.

The ECB needs to be in a position to ensure the transmission of its interest rates in all euro-area countries, Draghi said after the bank held the benchmark at a record low of 0.75 percent. The central bank forecast a deeper economic contraction for 2012 than three months ago. Nations in the MSCI index send about 30 percent of their exports to the European Union, according to the World Trade Organization.

“The markets generally believe the ECB stands ready to do whatever it takes,”Gavin Redknap, an emerging-markets strategist at Nikko Asset Management, said by phone from London. “While the bond buying is good news, the fact that they did not cut rates despite lower growth forecast is not so good.”

Currencies Strengthen

U.S. economic reports today showed fewer Americans than forecast filed applications for unemployment benefits last week, while non-manufacturing businesses expanded faster than economists projected.

Poland’s zloty appreciated 1.5 percent against the dollar to lead gains among emerging-market currencies. South Africa’s rand strengthened 1.4 percent. Brazil’s real climbed 0.3 percent against the euro.

The extra yield investors demand to own emerging-market bonds over U.S. Treasuries declined 13 basis points to 304, according to JPMorgan Chase & Co.’s EMBI Global Index.

The ECB’s program “will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro,” Draghi told reporters in Frankfurt. “Under appropriate conditions, we will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area.”

Euro-area gross domestic product will decline 0.4 percent this year instead of an earlier forecast of a 0.1 percent drop, he said.

Energy

The MSCI Brazil/Materials Index (MXBR) gained the most among 10 industry groups as Petrobras rose 2 percent and OGX added 2.8 percent. OAO Mechel (MTLR), Russia’s largest coal producer for steelmakers, jumped 5.5 percent while Mexico’s Industrias CH advanced 2.4 percent. Crude oil for October delivery gained 0.2 percent to settle at $95.53 a barrel on the New York Mercantile Exchange after a U.S. government report showed a bigger-than- expected decline in inventories.

Mexican production of cars and light trucks rose 12.3 percent in August from the year-earlier period, the nation’s Automobile Industry Association, known as AMIA, reported. Exports of vehicles climbed 10.8 percent over the same period.

Hungary’s BUX Index (BUX) erased an earlier decline, gaining 0.6 percent after Prime MinisterViktor Orban said the country rejects aid conditions set by the International Monetary Fund. The IMF conditions, including a cut in pensions and the scrapping of an extraordinary bank tax, aren’t in the national interest, Orban said in a video message posted on his Facebook page.

Trains and Railways

Asian shares climbed before Draghi’s announcement. CSR Corp. (1766), China’s biggest trainmaker by market value, rallied 8.8 percent and led rail stocks to three of the top four in the MSCI index after the government approved plans for subways in 18 cities including Shenzhen.

China Railway Group Ltd. (390) surged 7.1 percent, while China Railway Construction Corp. (1186) jumped 6.5 percent. China’s National Development and Reform Commission approved development plans for subways in cities including Suzhou, Hangzhou, Guangzhou and Tianjin, the agency said on its website yesterday.

“The subway development plan boosts investors’ expectations of more spending by the government,” Xu Shengjun, an analyst at Jianghai Securities Co. in Shanghai, said by phone today.

The Shanghai Composite Index (SHCOMP) advanced 0.7 percent after closing yesterday at the lowest level since February 2009. South Korea’s Kospi Index (KOSPI) increased 0.4 percent and the BSE India Sensitive Index gained 0.2 percent. The Jakarta Composite Index added 0.7 percent.

To contact the reporter on this story: Michael Patterson in London at mpatterson10@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

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