Purging of emerging market stocks halts, shares hit two-month high

Possible solution to Greek drama reigniting interest in cross-border bets

Jan 18, 2012 @ 1:56 pm

Emerging-market stocks headed to a two-month high on speculation Greece is nearing a deal to write down debt.

The MSCI Emerging Markets Index (MXEF) climbed 0.6 percent to 978.18 at 10:15 a.m. in New York, set for its highest close since Nov. 9. The Shanghai Composite index lost 1.4 percent after rallying the most since October 2009 yesterday. Hungary's BUX Index advanced for a fifth day, the longest streak of gains in a year. The Bovespa added 1.1 percent.

Greek Prime Minister Lucas Papademos resumes talks with private bondholders today about a deal to write down some of the country's debt. The International Monetary Fund is proposing to raise its lending capacity by $500 billion to insulate the global economy against any worsening of Europe's debt crisis, according to a person familiar with the discussions.

“We are suspicious of the current unabated rally in risk appetites since the start of the week, fed off better data and some hope of progress in Greece,” analysts at BNP Paribas SA including Bartosz Pawlowski in London wrote in an e-mailed note to clients. “We saw some profit taking in Asian stocks today, with the general mood heading into Chinese New Year one of lingering caution.”

Emerging-market stocks have gained 6.7 percent this year, besting the 2.9 percent advance for the MSCI World Index (MXWO) of developed-market shares. The MSCI Emerging Markets Index trades for 9.9 times projected earnings, trailing the 11.9 ratio of the developed-nation index.

Greece Deal, U.S. Economy

Greece is nearing a deal with private creditors that would give them cash and securities worth about 23 cents per euro of government debt, said Bruce Richards, who is on the committee negotiating a debt deal with the government. Richards is also chief executive officer of Marathon Asset Management LP in New York.

Less than half of companies in the U.S. benchmark Standard & Poor's 500 Index have reported earnings that exceeded the average analyst estimate as the fourth-quarter reporting season begins, according to data compiled by Bloomberg. So-called positive surprises have surpassed 50 percent at a comparable point in every other quarterly reporting period for the past four years.

A gauge of property stocks in the Shanghai Composite slid 1.7 percent after the nation's home prices posted their worst performance last year in December. China's markets are closed next week for the Lunar New Year holidays.

“After the big rally yesterday and with next week's holidays coming up the market may take a pause here,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Though market expectations are high that the government will encourage fresh money into stocks, it remains to be seen how soon these support measures will materialize.”

Hungary Report

The BUX Index (BUX) jumped 2.6 percent in Budapest and the forint strengthened 1 percent against the euro on speculation the government will accept conditions imposed by the European Union and the IMF in return for a bailout. Hungary is ready to comply with demands from the European Union over the central bank, Bild reported, citing an interview with Prime Minister Viktor Orban.

The Bovespa advanced, as consumer-goods maker Hypermarcas SA (HYPE3) led gains by companies that depend on domestic demand. Hypermarcas rose 3.5 percent.

Indonesia's Jakarta Composite Index (JCI) rose 0.6 percent after Moody's Investors Service upgraded the nation's sovereign debt rating to investment grade.

The rupiah appreciated 0.7 percent against the dollar after Moody's increased Indonesia's foreign- and local-currency rating to Baa3 from Ba1. The move returned the country to investment level for the first time in 14 years.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell 2 basis points or 0.02 percentage point, to 438, according to JPMorgan Chase & Co.'s EMBI Global Index.

--Bloomberg News--

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