Emerging-Market Stocks Advance on China as Ukraine Bonds Tumble

Jan 22, 2014 5:31 pm ET

Jan. 22 (Bloomberg) -- Emerging-market stocks advanced, snapping a four-day retreat, as a decline in Chinese money- market rates eased concern about a cash squeeze. Ukraine bond yields surged amid deadly anti-government clashes.

The MSCI Emerging Markets Index added 0.6 percent to 976.47. The Shanghai Composite Index rallied the most in two months as money-market rate decreased for a second day. Brazil’s Ibovespa climbed as Vale SA drove gains in commodity exporters, while Indian stocks jumped to a record. Yields on Ukraine’s bonds due in June jumped the most in almost two months and stocks fell following a night of street violence,

China’s benchmark money-market rate declined and stocks advanced after fund injections by the central bank eased a cash squeeze in the run-up to the Lunar New Year holiday. The People’s Bank of China is using money-market operations and cash injections to prevent rates climbing to levels that would stifle economic growth and heighten the chance of a credit crisis.

“China obviously doesn’t want to tighter the monetary policy even more and put additional stress on the financial system,” Paul Zemsky, the head of multi-asset strategies at ING U.S. Investment Management, which oversees $200 billion, said by phone from New York. “It’s trying to ease concern that the People’s Bank of China is keeping monetary policy too tight in an effort to keep real estate speculation in check.”

All 10 groups in the emerging-market gauge rose, led by health-care and utility companies. The iShares MSCI Emerging Markets Index exchange-traded fund increased 1.3 percent to $40.26. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, slid 3.6 percent to 20.40.

Brazil, Russia

Brazil’s Ibovespa advanced, snapping its longest losing streak in two months, as concern eased that growth will slow in China, the nation’s top trading partner. Vale jumped 1.5 percent. Gol Linhas Aereas Inteligentes SA was the best performer on the index after the airline reported that a measure of profitability surged in the fourth quarter.

Russian equities fell for the first time in four days as consumer stocks retreated on concern the nation’s economic slowdown will curb earnings. OAO Magnit, the nation’s largest retailer, slid 1.7 percent, the lowest since Oct. 3. Benchmark stock gauges in Turkey, Hungary and Poland also gained.

Yields on Ukraine’s bonds due in June climbed after two dead bodies were found following a night of street violence, the first fatalities since protests began two months ago. President Viktor Yanukovych is struggling to stem rallies against his November snub of a European Union cooperation deal, with police crackdowns fanning people’s anger.

Repurchase Rate

The Shanghai Composite Index rallied 2.2 percent, the biggest gain since Nov. 18. Anhui Yingliu Electromechanical Co. soared in its Shanghai debut. Ping An Bank Co. and Poly Real Estate Group Co. rose more than 3 percent to lead gains for financial companies. The seven-day repurchase rate, a gauge of interbank funding availability, dropped 19 basis points to 5.25 percent in Shanghai, according to a daily fixing compiled by the National Interbank Funding Center.

“The Chinese New Year, when cash demand by depositors tends to increase, historically caused a spike in interbank borrowing rates,” Bill Adams, a senior international economist at PNC Financial Services Group in Pittsburgh, which oversees $127 billion in assets, said by phone. “The Chinese government looks well-positioned to be resilient even if the interest rates rise.”

Indian stocks climbed to a record, led by metal producers and software exporters, as an improving global economy boosted the outlook for their earnings. Tata Steel Ltd., the country’s top producer of the alloy, had its biggest two-day advance since November. Aluminum maker Hindalco Industries Ltd. gained for a third day.

The premium investors demand to own emerging-market debt over U.S. Treasuries fell two basis points, or 0.02 percentage point, to 316 basis points, according to JPMorgan Chase & Co.

--Editors: Rita Nazareth, Matthew Brown