Emerging markets experience turn around

Emerging-market stocks rose for the first time in five days on bets subdued Chinese inflation data will give policy makers more room to boost stimulus and as tension eased in Ukraine.

China Construction Bank Corp. climbed the most in almost five months in Hong Kong. OAO Sberbank rallied 4.5% in Moscow after MSCI Inc. retained the shares in its Russia Index following a review. BHP Billiton Plc led gains in South Africa’s equity gauge, which jumped the most this year. Indonesia’s rupiah posted the biggest gain among Asian peers, while the lira fell. Fitch Ratings said the election of Recep Tayyip Erdogan as president did little to improve Turkey’s credit profile.

The MSCI Emerging Markets Index advanced 1.2% to 1,057.71 at 1:55 p.m. in London. Russia ended military drills in the Astrakhan region, sending troops back to their permanent bases, Interfax reported Aug. 8. China’s consumer prices rose 2.3% in July, below the government’s target of 3.5% for 2014, data showed over the weekend.

There’s a “perception that Russia-Ukraine risk could de-escalate,” Brian Coulton, a London-based emerging-market strategist at Legal & General Investment Management, which oversaw £452 billion ($759 billion) of assets at the end of 2013, said by e-mail. In China, “low inflation reinforces the perception of the authorities having further space to support growth with macro policy,” he said.
 

Sberbank, VTB
 

A Bloomberg gauge tracking 20 developing-country currencies strengthened for a second day. The premium investors demand to own emerging-market debt over U.S. Treasuries (CBOT:ZNU14) narrowed four basis points to 293, according to JPMorgan Chase & Co. indexes.

All 10 industry groups in the MSCI Emerging Markets Index rose, led by the gauge of financial companies, which increased 1.5%, the most in four months. China Construction Bank added 2.1% and China Resources Land Ltd. jumped 5.7%, the biggest advance since July 23.

Sberbank rallied the most since May 7 in Moscow, reversing this month’s drop. MSCI said Aug. 8 it would keep Sberbank and VTB Group in its MSCI Russia Index after consultations with investors. Shares of the two banks had retreated this month after the New York-based index provider said it was reconsidering their inclusion in the measure following a deepening of U.S. and European Union sanctions.

VTB climbed 3.8% and the Micex added 1.8% in its second day of gains. Ukrainian shares fell 0.4%. The country’s military demanded that pro-Russian rebels surrender and dismissed their offer of a cease-fire as lawmakers prepared to consider sanctions that may curb Russian shipments of natural gas to Europe.
 

Turkish Elections
 

Equity gauges in Dubai and Egypt gained at least 1.3%, while the FTSE/JSE Africa All Shares Index surged 1.6% in Johannesburg, the most since Dec. 27, as tension in Ukraine eased and Israel and militants in the Gaza Strip agreed to an Egyptian-brokered truce.

Iraqi bonds due in January 2028 increased for the first time in almost two weeks. The U.S. destroyed several armed trucks and a mortar position held by Iraqi militants, the U.S. Central Command in Tampa, Florida, said yesterday.

Turkey’s lira (CME:E4U14) declined 0.1% against the dollar and the Borsa Istanbul 100 Index fell 1.2%. Investors are awaiting clarity on who will be named the next prime minister after Erdogan’s election victory, Erkin Isik, a fixed-income strategist at Turk Ekonomi Bankasi AS, said by e-mail. Political risk in Turkey is set to remain a credit weakness that could lead to a negative rating action, Fitch said in a statement today.
 

China Policy
 

The MSCI Emerging Markets Index fell for a second week in the five days through Aug. 8, dragging valuations to 10.9 times 12-month projected earnings, the lowest since June 25, according to data compiled by Bloomberg. The MSCI World Index trades at a multiple of 14.7.

The S&P BSE Sensex Index climbed 0.8% in Mumbai, ending a three-day loss. Developer DLF Ltd. rallied 2.7% after India approved the introduction of real-estate investment trusts.

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong advanced 1.9%, the most since July 23. The Shanghai Composite Index added 1.4%. China loosened monetary conditions last quarter at the fastest pace in almost two years, a Bloomberg LP gauge showed, testing the waning effectiveness of credit in supporting economic growth.

The rupiah strengthened 0.8% versus the dollar and the Jakarta Composite Index rose 1.2% on bets judges will dismiss a challenge to incoming president Joko Widodo’s election victory.

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