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Emerging Stocks Swing Between Gains, Losses on China

Most emerging-market stocks rose as India’s efforts to revive economic growth offset concern that the slowdown in China is deepening.

The MSCI Emerging Markets Index (VXEEM) slid 0.1 percent to 1,012.63, with 364 stocks climbing and 347 falling. ICICI Bank Ltd. (ICICIBC), India’s largest private lender, jumped the most in six months as the BSE India Sensitive Index extended its gains to the longest streak in five years. Brazil’s Bovespa stock index declined, led by homebuilder PDG Realty SA Empreendimentos e Participacoes. The Shanghai Composite Index fell 2.1 percent.

India’s central bank unexpectedly reduced lenders’ reserve requirements following announcements by the government last week that it will open its retail and airline industries to foreign investors. The Fed’s open-ended asset purchase program last week followed the European Central Bank’s Sept. 6 announcement of an unlimited bond-buying program to combat the region’s debt crisis. Citigroup Inc. cut its economic growth forecast for China in 2013.

“India and so many other central banks are throwing a lot of liquidity in the markets and that’s been taken in a positive light,” Guillaume Salomon, a strategist at Societe Generale SA, said by phone from London. “The developments out of the Fed and the ECB have been received well and the overall sentiment has been quite supportive.”

EM ETF Slides

The iShares MSCI Emerging Markets Index (MXEF) exchange-traded fund, the ETF (EEM) tracking developing-nation shares, decreased 1.1 percent. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, rose 1.4 percent.

The Bovespa fell 0.5 percent. PDG Realty slumped 6.9 percent, the most since July 31.

The MSCI gauge fluctuated between gains and losses after a 3.3 percent advance on Sept. 14 that sent the index to the highest level since May 3. Last week’s rally was fueled by speculation that a third round of asset purchases from the U.S. Federal Reserve will buoy the global economy and spur investors to buy riskier assets in emerging markets.

Hungary’s BUX Index (BUX), which surged 4.8 percent last week, retreated 0.8 percent, the same as the Czech PX Index. European Union finance ministers failed to agree on a timetable for a more unified banking sector and clashed over terms of bailout requests and the role of the European Central Bank at a meeting Sept. 14 in Cyprus.

Nations in the MSCI index send about 13 percent of their exports to the U.S. and 30 percent to the EU on average, according to the World Trade Organization.

Sensex Rally

The extra yield investors demand to own emerging-market dollar bonds over U.S. Treasuries climbed 3 basis points, or 0.03 percentage point, to 285, according to JPMorgan’s EMBI Global Index.

India’s Sensex index advanced for a ninth day, climbing 0.4 percent to the highest level since July 2011. ICICI Bank advanced 5.2 percent. The rupee strengthened 0.6 percent against the dollar.

Central bank Governor Duvvuri Subbarao cut the cash reserve ratio to 4.5 percent from 4.75 percent, effective Sept. 22, adding about 170 billion rupees ($3.1 billion) to the banking system. Three of 39 economists in a Bloomberg News survey predicted the reduction to the lowest level since 2004. The rest forecast no change after two cuts earlier in 2012.

Retailers, Airlines

Pantaloon Retail India Ltd. (PF), India’s largest operator of supermarkets, surged 19 percent for its biggest gain since May 2009. Shoppers Stop Ltd. (SHOP) jumped 7.8 percent. Kingfisher Airlines Ltd. (KAIR) rallied 20 percent and SpiceJet Ltd. (SJET) gained 12 percent. The changes in foreign ownership rules were announced after local markets closed on Sept. 14.

“Any change that stimulates the inflow of foreign direct investment is a type of development that can stabilize the currency and that’s important to us as U.S.-based investors,” said Lewis Kaufman, the Santa Fe, New Mexico-based money manager whose Thornburg Developing World Fund has climbed 13 percent during the past year, beating 97 percent of peers.

The EGX 30 index climbed 1.3 percent in Egypt, extending this year’s gain to 63 percent.

Hundreds were hurt during clashes between protesters and authorities in Egypt, Tunisia and Sudan against a film denigrating Islam, before protests diminished over the weekend. Clashes in Cairo’s Tahrir Square stopped Sept. 15 after Egypt’s main Islamist groups called for calm. Libya arrested about 50 people in connection with the attack on the U.S. consulate in Benghazi that left the U.S. ambassador and three others dead.

Protests

China’s Shanghai Composite Index (SHCOMP) fell the most since July 9. Citigroup lowered its 2013 growth forecast for China to 7.6 percent from 8 percent, citing weak external demand, according to a report dated Sept. 14.

Dongfeng Motor Group Co. (489), which produces cars with Nissan Motor Co. in China, slumped 7 percent. Guangzhou Automobile Group Co., a partner of Toyota Motor Corp. and Honda Motor Co., tumbled 4.5 percent.

Demonstrators took to the streets in a dozen cities across China including Beijing, Shanghai and Guangzhou, calling for Chinese sovereignty over disputed islands and the boycott of Japanese goods. Toyota Motor Corp. and Panasonic Corp. reported damage to their operations.

To contact the reporters on this story: Michael Patterson in London at mpatterson10@bloomberg.net; Sridhar Natarajan in New York at snatarajan15@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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