Emerging Stocks Rise to High

July 04, 2011, 6:03 PM EDT By Saeromi Shin and Jason Webb

July 4 (Bloomberg) -- Emerging-market stocks rose, driving the benchmark index to a two-month high, on speculation China will refrain from boosting interest rates and as Morgan Stanley recommended investors buy more developing-nation equities.

The MSCI Emerging Markets Index climbed 1.1 percent to 1,169.49 at 5 p.m. New York time, closing at the highest level since May 4. Brazil’s benchmark Bovespa increased 0.8 percent to gain for a sixth day, the longest winning streak since April, as traders pared bets for higher borrowing costs in Brazil and amid optimism on Greece’s debt crisis.

The Shanghai Composite Index rallied 1.9 percent and South Korea’s Kospi Index rose 0.9 percent. Thailand’s SET Index jumped 4.7 percent after an election victory by allies of exiled premier Thaksin Shinawatra raised prospects foreign investors will return to the nation. Turkish stocks increased and the lira slipped after inflation slowed more than expected in June.

Morgan Stanley analysts led by Jonathan Garner raised the allocation to equities in their emerging-market model, citing “attractive” valuations and the prospects of a “stronger” second half as inflation peaks. China’s non-manufacturing industries grew at the slowest pace in four months, creating speculation policy makers will hold off from raising rates further.

“Bets that China won’t intensify its tightening moves provided a boost to sentiment,” said Lim Chang Gue, a fund manager in Seoul at Samsung Asset Management Co., which oversees about $30 billion. “Investors will now closely monitor the U.S. economic figures this week, especially job market data.”

Morgan Stanley

Emerging-market investors should hold 56 percent of their assets in equities, compared with the 54 percent recommended in October, the Morgan Stanley analysts wrote in a report today. They lifted their end-2011 forecast for MSCI’s emerging-market gauge by 1 percent to 1,305 and for the MSCI Asia Pacific excluding Japan Index by 2 percent to 550.

China’s stocks rallied, lifting the Shanghai Composite to the highest close since May 20. A purchasing managers’ index for non-manufacturing industries dropped to 57 in June from 61.9 in May, the China Federation of Logistics and Purchasing said yesterday. A reading above 50 indicates an expansion.

In Thailand, the baht appreciated the most since December 2008 and the benchmark SET Index rose by the biggest percentage since April 2010. Pheu Thai, led by Thaksin’s sister Yingluck Shinawatra, won 265 seats in the 500-member parliament and announced the formation of a five-party, 299-seat coalition. The decisive win by Thaksin’s allies may bring stability to a nation beset by clashes between his supporters and opponents that claimed more than 100 lives since the last vote in 2007.

Brazil Growth

In Brazil, Airline Gol Linhas Aereas Inteligentes SA and cosmetics maker Natura Cosmeticos SA led gains for consumer stocks as investors speculated the central bank will raise interest rates less than previously estimated to tame inflation. Analysts in a weekly central bank survey cut their median forecast for how much Latin America’s biggest economy will grow this year for second straight week.

Turkey’s ISE National 100 Index gained 1.5 percent to the highest level in four weeks, fueled by a 1.9 percent advance by Turkiye Garanti Bankasi AS.

The country’s annual consumer inflation rate decreased to 6.2 percent from 7.2 percent a month earlier, the statistics office in Ankara said on its website today. It was forecast at 7 percent, according to the median estimate of 11 economists surveyed by Bloomberg.

The lira weakened by 0.6 percent against the dollar. The Korean won strengthened by 0.3 percent and the Indian rupee appreciated by 0.4 percent.

The FTSE/JSE Africa All Shares Index rose by 0.5 percent as prices of oil and metals advanced. Russia’s Micex Index increased by 0.5 percent.

South Korean Brokerages

In Seoul, the Kospi Index gained as South Korean brokerages rallied, led by Daewoo Securities Co.’s 7.7 percent jump, on speculation trading value and volume will gain as the benchmark index continues to rise.

“Investors appear to be betting that the stock gauge may rise through its previous high, and that valuations of many brokerages are attractive,” said Son Mi Ji, an analyst at Shinhan Investment Corp.

-- With assistance from Ben Bain in New York. Editor: Marie- France Han

To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net; Jason Webb in London at jwebb25@bloomberg.net.

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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