Emerging Stocks Gain Led by China as Currencies Trim June Drop

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Emerging-market stocks rose after the worst decline in two years on speculation China will move to stem bear-market losses. Currencies pared a monthly drop as Morgan Stanley said fallout from the Greece crisis would be limited.

The Shanghai Composite Index rose 5.5 percent, helping the gauge to the biggest intraday swing since 1992. China is considering steps to stabilize stocks, the Economic Observer reported, while the finance ministry said it will allow the pension fund to invest in shares. Russia’s ruble posted the biggest first-half gain among the world’s currencies as oil prices rebounded.

The MSCI Emerging Markets Index increased 1.3 percent to 972.25. It lost 2.2 percent on Monday. The gauge slumped 3.2 percent in June as prospects for higher U.S. interest rates and Greece’s exit from the euro damped demand for riskier assets. A possible policy response by the European Central Bank “would likely contain the potential fallout” on developing-nation assets, Morgan Stanley said in a research note.

“While things in Greece are very bad, potential spillovers might not be as large as some had feared,” William Jackson, an analyst at Capital Economics Ltd. in London, said by phone. “There has been a gradual improvement in perception.”

Greece asked for a new bailout Tuesday, hours before its existing aid agreement was set to expire. The proposal didn’t include any of the economic-reform measures negotiators had sought for months.

China Stimulus

Nine of the 10 industry groups in the emerging-market stock gauge rose, led by consumer discretionary stocks. The Hang Seng China Enterprise index gained the most since May 26 and the Shanghai Composite Index posted its biggest rally since March 2009. A decline in the prior three days pushed the measure down almost 14 percent.

The government is considering a delay in the IPO of China Nuclear Engineering Corp. because of market conditions, according to people with knowledge of the matter, who asked not to be identified because the information is private.

“The retail market is expecting more stimulus,” Thebes Lo, a Hong Kong-based vice president at Kim Eng Securities Ltd., said by phone.

The collapse of Greek aid talks sparked a $1.5 trillion global rout on Monday. While contagion risks sent bonds in Bulgaria and Romania plunging yesterday, their notes due in 2024 climbed today. Greece’s four largest lenders have operations in the two countries. Hungarian stocks rose 1.3 percent on Tuesday and currencies in Turkey and Romania strengthened versus the euro.

Greek Fallout

Euro-area finance ministers are scheduled to discuss Greece’s new aid bid on Wednesday, after its current program expires. Formal negotiations may have to wait until after a July 5 referendum called by Greek Prime Minister Alexis Tsipras on further budget cuts. German Chancellor Angela Merkel said there will be no further talks before then.

“While volatility is likely to remain high in the coming weeks, we believe this risk can nonetheless be contained as the ECB stands ready to intervene and exposure to Greece has reduced significantly since 2012,” Morgan Stanley said.

Most Brazilian stocks rose as gains in electronic-payment processor Cielo SA, which jumped 3.7 percent, helped outweigh a 4.1 percent drop in iron-ore producer Vale SA. The Ibovespa added 0.1 percent.

An index tracking 20 emerging-market currencies rose 0.1 percent, trimming this month’s decline to 0.8 percent. The ruble strengthened 0.7 percent against the dollar. Russia’s currency was the world’s best performer in the first half of this year, advancing 9.9 percent amid a recovery in oil prices and a truce in eastern Ukraine.

Those gains have shrunk by more than half in the past two months as the central bank and government bought foreign currency in moves analysts said were aimed at stemming the rally to keep Russian exports more competitive.

There will be “further weakness” next quarter in part due to foreign-currency bond maturities, Yury Tulinov, the head of research at PAO Rosbank in Moscow, said by e-mail.

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