Emerging Stocks Climb to Seven-Month High on China; Ruble Falls

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Emerging-market stocks climbed to a seven-month high as shares rallied the most since January in Shanghai amid mounting speculation that China will step up measures to support growth in the world’s second-largest economy.

The Shanghai Composite Index rose to the highest since 2008 as PetroChina Co. and China Petroleum & Chemical Corp. each surged 10 percent on speculation the government is considering mergers of state enterprises. Stocks gained for a fourth day in Taiwan. The Ibovespa ended a three-day advance as Brazil’s state-controlled oil producer Petroleo Brasileiro SA plunged after Morgan Stanley said sell. Russia’s ruble weakened as traders boosted bets for interest-rate cuts.

The MSCI Emerging Markets Index rose 0.6 percent to 1,067.22. China’s central bank is discussing adopting unconventional policies to rebuild its balance sheet and reinvigorate the economy, Market News reported. Policy makers in Asia and Europe have taken steps, including bond purchases known as quantitative easing, to support growth.

“Chinese stocks are lifting emerging-market equities in general,” Michael Wang, a London-based strategist at Amiya Capital LLP, a hedge fund investing in developing countries, said by e-mail. There is “speculation that China is about to embark on QE, which is driving Chinese stocks,” he said.

ETF Inflows

The developing-nation gauge has gained 12 percent this year and trades at 12.8 times 12-month projected earnings, data compiled by Bloomberg show. That compares with a 5.4 percent advance for the MSCI World Index, which is valued at a multiple of 17.1.

Investors added $1.1 billion to U.S. exchange-traded funds that buy emerging-market stocks and bonds last week, putting the ETFs on pace for the biggest month of inflows since April of last year.

A gauge of energy stocks jumped to the highest since November as nine of 10 industry groups in the MSCI developing-nation index advanced. PetroChina rallied to the highest level since August 2009 in Shanghai, while China Petroleum jumped to a five-year high. Sinopec Shanghai Petrochemical Co. soared 20 percent to a record in Hong Kong.

China may cut the number of state-owned companies to 40 from the current 112 through mergers and restructuring, the Economic Information Daily said.

“Big oil names are soaring because of speculation that the government is studying mergers in the industry” in China, said Clement Cheng, a trader at RBC Investment Management Asia in Hong Kong.

Ruble Weakens

The Shanghai Composite added 3 percent while Hong Kong’s Hang Seng China Enterprises Index rose 1.7 percent to the highest close since January 2008.

The ruble weakened 2 percent against the dollar. The central bank will lower its key rate by 1 percentage point on April 30, according to the median of 36 estimates in a Bloomberg survey. Traders predict 140 basis points of cuts in the next three months, up from 115 basis points a week ago, forward-rate agreements show. The dollar-denominated RTS Index of Russian stocks retreated 1.6 percent.

The Ibovespa slid 1.9 percent in Sao Paulo. Petrobras tumbled 5.1 percent, the most since early February. The oil producer will probably continue focusing on servicing debt holders to the detriment of equity holders, Morgan Stanley analysts Bruno Montanari and Madalena Carmona e Costa wrote in research note.

Yield Spread

An index tracking 20 emerging-market currencies advanced 0.4 percent in its fourth straight gain. Turkey’s lira strengthened 1.4 percent against the dollar after closing at a record on Friday.

Indian shares slid 1 percent to the lowest close since Jan. 7 after concern over company earnings and tax issues spurred capital outflows. Notices have been sent to 68 overseas funds for arrears of 6 billion rupees ($95 million) toward minimum alternate tax (MAT), junior finance minister Jayant Sinha said on Friday.

Taiwan’s Taiex added 0.6 percent, climbing to the highest level since 2000. It earlier exceeded 10,000 for the first time since April 2000, as the possibility of an equities link with Shanghai triggered a surge in demand for local shares.

Global funds purchased $2.6 billion more Taiwanese shares than they sold last week, the biggest net inflows since 2007, exchange data show. The Taiwan dollar strengthened 0.6 percent.

The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed twp basis points to 341 basis points, according to JPMorgan Chase & Co. indexes.

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