Emerging-Market Stocks Rise Most Since ‘89; Ukraine, Rand Lead
poised for their best month in 20 years as evidence the global recession is easing spurs investor demand for higher-yielding assets.
By Laura Cochrane, Garth Theunissen and Michael Patterson
April 30 (Bloomberg) -- Emerging-market stocks are poised for their best month in 20 years as evidence the global recession is easing spurs investor demand for higher-yielding assets.
The MSCI Emerging Market Index surged 17 percent, the steepest gain since April 1989, as Russia’s Micex added 19 percent, India’s Bombay Stock Exchange Sensitive Index rose 18 percent and Brazil’s Bovespa jumped 17 percent. Ukraine, the worst of the 60 biggest stock markets in 2008, led gains this month, soaring 50 percent. South Africa’s rand, the laggard of 27 major world and emerging-market currencies last year, rallied 12 percent against the dollar in April.
Investors are returning to emerging markets after governments worldwide pledged more than $1 trillion to cushion developing countries from the most severe financial crisis since the Great Depression, while stimulus packages and interest-rate cuts from China to Brazil helped stabilize economic growth.
“The markets are rallying on the sense that the worst is over for the global economy,” said Jon Harrison, emerging- markets currency strategist at Dresdner Kleinwort in London. “While there may be some more setbacks to the market, the setbacks won’t be as severe as the previous lows.”
The MSCI index is surging for a second month, gaining 33 percent since the end of February in the steepest two-month rally since the gauge began in 1987, according to data compiled by Bloomberg. Benchmark indexes in all 23 emerging markets tracked by MSCI advanced this month, while 21 of the nations’ currencies strengthened against the dollar.
China, Taiwan
Stocks may extend this month’s rally after the MSCI index broke through the 200-day moving average for the first time since June, Bloomberg data show. Technical analysts use moving averages to predict trends in price movements. The index rose 3.21 percent to 666.29 at 11:40 a.m. in New York.
In Latin America, Brazil’s Bovespa rose 1.4 percent, while Mexico’s Bolsa climbed 1.7 percent.
Taiwan led today’s rally, with the Taiex index jumping the most since 1991, as the island allowed Chinese investments for the first time in six decades and Taiwan Semiconductor Manufacturing Co. beat profit estimates.
China’s Shanghai Composite Index advanced 4.4 percent in April, extending this year’s gain to 36 percent. China has pledged $585 billion in stimulus spending, driving a quadrupling in bank lending based on the latest monthly data and a 25 percent jump in vehicle sales.
Ukraine is benefiting after Group of 20 leaders tripled the International Monetary Fund’s rescue pool to $750 billion as the Washington-based lender doubled its limit on aid to poor nations and allowed some countries to borrow without conditions. The IMF has approved more than $70 billion in emergency loans in the past six months.
IMF Review
The IMF said this month it will give Ukraine $2.8 billion from a $16.4 billion bailout package by mid-May, more than the $1.9 billion initially slated for February, eliminating the risk of a government default. Raiffeisen Bank Aval, Ukraine’s biggest publicly traded lender, doubled its market value this month after saying on April 15 it repaid the last tranche of a $500 million loan to 40 financial institutions.
“The IMF wouldn’t let such an important emerging-market country like Ukraine fail because of the dire impact it could have on the rest of emerging Europe,” said Ivan Tchakarov, director for emerging-market research at Nomura Holdings Inc. in London and a former economist at the IMF in Washington.
Ukraine stocks fell 74 percent last year as Prime Minister Yulia Timoshenko’s government approved a budget deficit that exceeded IMF terms, clashing with President Viktor Yushchenko. The IMF will review Ukraine’s budget in June for a third loan payment of $2.8 billion. The economy will contract 8 percent to 10 percent this year because of a plunge in exports, which make up about 60 percent of gross domestic product, Yushchenko’s top economic aide Oleksandr Shlapak said April 27.
Volatile Market
“Ukraine may have been the world’s best this month but could easily be the world’s worst next month,” said Ivan Ivanchenko, global head of strategy and research in Moscow at VTB Capital, the investment banking unit of Russia’s second biggest lender.
South Africa’s rand rebounded as the IMF forecast the continent’s largest economy will weather the credit crisis with a 0.3 percent contraction this year, compared with 2.8 percent in the U.S. and 6 percent in Russia. The central bank is accelerating interest-rate cuts to stimulate spending, cutting its benchmark rate by 1 percentage point today to 8.5 percent.
Jacob Zuma, due to be inaugurated as president on May 9, has allayed investor concern of changes to economic policy. The administration will keep to “conservative fiscal and monetary policies,” Mathews Phosa, the ANC’s treasurer general, told investors in London this week.
Relative Value
The rand lost 28 percent last year versus the dollar, as foreign investors sold a record 70.8 billion rand ($8.3 billion) of South African assets, according to data from the country’s stock and bond exchanges. The currency added 0.4 percent to 8.4600 today.
“We’re seeing a re-assessment of the rand’s relative value because of the fact that South Africa’s economy and financial system are relatively more sound than is the case in many other countries,” said Shahin Vallee, an emerging-market currency strategist in London at BNP Paribas SA, France’s largest bank.
The extra yield investors demand to own Ukraine’s bonds instead of U.S. Treasuries shrank 1 percentage point to 16.42 percentage points, according to JPMorgan Chase & Co. The so- called spread on emerging-market bonds overall narrowed 5 basis points to 5.32 percentage points. A basis point equals 0.01 percentage point.
To contact the reporters on this story: Laura Cochrane in London at lcochrane3@bloomberg.net; Garth Theunissen in Johannesburg gtheunissen@bloomberg.net |
