China Rate Cut Lifts Emerging Markets as Polish Vote Hurts Banks

  • Shanghai Composite Index rises to highest in two months
  • Russian stocks slump with oil prices as Sensex drops in Mumbai

Most emerging-market stocks rose as China’s surprise interest-rate cut added momentum to a rally in Shanghai, outweighing declines in Russia and India. The zloty weakened and Polish banking stocks fell after the opposition party claimed an election victory.

The Shanghai Composite Index climbed to a two-month high in the first trading day after China lowered borrowing costs for the sixth time in a year and reduced lenders’ reserve requirements. South Korea’s equity benchmark rallied to the highest level since July. The Micex ended a two-day gain as oil, Russia’s biggest export, declined.

The MSCI Emerging Markets Index has rallied 9.5 percent in October, on course for the best monthly performance since January 2012, as prospects that the Federal Reserve won’t raise interest rates imminently bolstered appetite for riskier assets. While China’s easing signaled it was serious about boosting economic growth, it also raised concern that the magnitude of the slowdown in the world’s second-largest economy may be worse than forecast.

China Meeting

“Good news from China is positively affecting emerging-market sentiment,” Hertta Alava, who helps oversee the equivalent of $395 million as the head of emerging markets at FIM Asset Management Ltd. in Helsinki, said by e-mail. “China’s growth is stabilizing, not collapsing, monetary stimulus will continue like we saw on Friday, and the reform story will probably get more fuel this week when we hear targets for the next five years.”

China’s leaders are gathering in Beijing this week to formulate the 13th five-year plan to confront an era of economic growth below 7 percent for the first time since Deng Xiaoping opened the nation to the outside world in the late 1970s. Investor inflows into U.S. exchange-traded funds that buy emerging-market stocks and bonds doubled in the week ended Oct. 23, led by China and Hong Kong.

The MSCI developing-nation stock index slipped 0.1 percent to 867.65 in New York, with 453 stocks rising and 336 declining. A gauge tracking 20 currencies was little changed. The premium investors demand to own emerging-market debt over U.S. Treasuries was unchanged at 392 basis points, according to JPMorgan indexes.

India’s S&P BSE Sensex Index fell from a two-month high as Bharti Airtel Ltd.’s earnings disappointed investors. The zloty lost 0.6 percent against the euro and a gauge of Polish banking shares slid to the lowest level in more than two weeks. The real weakened for the first time in three days. The Ibovespa fell 0.8 percent to 47,209.32 as iron-ore producer Vale SA slid to a one-week low.

India, Poland

South Korea’s Kospi Index increased 0.4 percent. The Taiex index advanced 0.8 percent in Taiwan. The MSCI Asia Pacific Index added 0.5 percent. The Sensex declined 0.4 percent as Bharti Airtel, India’s nation’s biggest cell-phone company, tumbled to a one-week low as its second-quarter profit that beat estimates included a one-time gain. Housing Development Finance Corp., the country’s largest mortgage lender, declined the most in a month after its net income missed estimates.

While the WIG20 Index in Warsaw climbed 0.2 percent, Polish banks slumped. The opposition Law & Justice party won 37.7 percent of the vote and a projected 232 seats in the 460-member lower chamber, the first time that a single group will command a majority since the re-introduction of democracy in Poland in 1989, according to a revised Ipsos exit poll. The party has pledged a tougher stance on refugees and more state control over the economy, while saying it will raise taxes on the financial industry.

Relative Value

The Micex Index declined 0.8 percent as oil producers including Lukoil PJSC dropped. Brent crude, the benchmark traders use to price Russia’s main export blend, declined 45 cents to $47.54 a barrel in London.

The MSCI Emerging Markets Index has fallen 9.3 percent in 2015 and the average valuation of its companies is 11.4 times projected 12-month earnings, representing a 28 percent discount to developed-country shares on the MSCI World Index. Four out of 10 industry groups rose on Monday. A gauge of energy stocks slumped for the fourth time in five days.

The Shanghai gauge rose to the highest close since Aug. 21. The rebound in Chinese equities will probably fade as the measures underscore fundamental weakness in the world’s second-largest economy, according to Barclays Plc, Blackfriars Asset Management Ltd. and BlackRock Inc. The economy grew 6.9 percent in the three months through Sept. 30, the slowest quarterly expansion since 2009.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE