Emerging-Market Stocks Climb to Highest Since November on China

Apr 10, 2014 5:33 pm ET

April 10 (Bloomberg) -- Emerging-market stocks advanced to the highest level since November as China’s plans to connect the stock exchanges of Hong Kong and Shanghai bolstered speculation the world’s second-largest economy will lure more investors.

The MSCI Emerging Markets Index added 0.7 percent to 1,021.74. The Shanghai Stock Exchange rallied to the highest level since February, while the Hang Seng Index climbed 1.5 percent in Hong Kong. Russia’s Micex Index rose 1.4 percent on optimism international talks will defuse tensions in Ukraine. Indonesia’s equity benchmark led losses in world equity gauges after Jakarta Governor Joko Widodo’s party received less support than expected in parliamentary elections.

Investors in China will be able to trade 10.5 billion yuan of Hong Kong-listed stocks through the Shanghai exchange, and 13 billion yuan of mainland shares through Hong Kong, the China Securities Regulatory Commission said today. A 2007 plan to allow Chinese to invest directly in Hong Kong stocks, which was later scrapped, helped push the Hang Seng Index to a record. China’s Premier Li Keqiang said the link will lead to deeper integration with international markets.

“That’s a clear positive,” Jeff Papp, a senior analyst at Oberweis Asset Management Inc., which manages $1.1 billion in assets, said by phone from Lisle, Illinois. “That’s been talked about for years, and it seems like it’s finally coming to fruition. There are positive reform developments going on, especially on a major emerging-market driver like China.”

Capital Flows

The tie-up is part of efforts by China to free up capital flows after the ruling Communist Party pledged the most sweeping reform package since at least the 1990s in November. Authorities are also trying to revive confidence in stocks as the Shanghai Composite trades 65 percent below its 2007 peak and valuations of Chinese shares in Hong Kong languish near the lowest valuations since 2001.

Trading in both indexes climbed to levels more than 40 percent higher than the 30-day average as investors bet valuation gaps among dual-listed equities will narrow. Tencent Holdings Ltd. jumped the most since 2011, pacing gains by large Chinese companies without mainland listings. Zhejiang Shibao Co., a maker of steering-system parts, surged 65 percent to lead an advance by Hong Kong stocks trading at discounts to their Chinese counterparts.

The Micex Index jumped the most since March 31. Russian Foreign Minister Sergei Lavrov and U.S. Secretary of State John Kerry discussed the crisis in Ukraine by phone yesterday and finance chiefs from the Group of Seven countries will address the crisis in Washington today.

Vale Sinks

The Ibovespa fell for a third day as a drop in commodities sank exporters including iron-ore producer Vale SA, overshadowing gains in consumer stocks after policy makers signaled they may stop raising interest rates.

Indonesian stocks had the biggest drop since August and the rupiah weakened by the most in three weeks. PT Astra International, the biggest company in the Jakarta Composite index, declined 6.2 percent.

The iShares MSCI Emerging Markets Index ETF slid 1.1 percent to $41.83. The premium investors demand to own emerging- market debt over U.S. Treasuries rose 0.01 percentage point to 292 basis points, according to JPMorgan Chase & Co.