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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Lagarde Signals to IMF Staff More Power for Emerging Markets

July 01, 2011, 1:48 PM EDT By Timothy R. Homan and Sandrine Rastello

July 1 (Bloomberg) -- Christine Lagarde signaled that as the new head of the International Monetary Fund she will follow through on a promise to increase the stature of emerging-market nations at the global lender.

Lagarde, speaking to IMF staff in a video message, distanced herself from her previous role as French finance minister and indicated she would advance efforts to give more voting power to countries such as China and Brazil, according to a transcript obtained by Bloomberg News yesterday. Her five-year term begins on July 5.

“The transformations that have taken place in relation to governance for instance, must be pursued, must be continued, so that the fund does belong to its 187 members,” Lagarde, 55, said. “I am not the director of a particular group of countries. I am the director of the entire institution.”

In the course of an election-style campaign that took her to Brazil, China and the Middle East, Lagarde promised to boost the clout of developing nations at the IMF. In doing so she garnered endorsements from emerging economies as well as European Union countries and the U.S.

Lagarde was selected over Agustin Carstens, Mexico’s central bank governor. Emerging markets failed to rally around a candidate from among their ranks, after calling for an end to Europe’s six-decade lock on the position.

Candidate Lagarde

As a candidate, Lagarde also said she would push for quick implementation of a 2010 agreement that makes China the third- strongest voice in the organization and gives more say to nations such as South Korea. The 2010 agreement also weakens the influence of advanced European economies, which pledged to reduce the number of seats they hold on the IMF’s 24-person executive board.

“I am very concerned that we can enrich the institution as much as we can by using diversity as an asset,” Lagarde said, according to the transcript of the video message. “Gender, geography, academic background, culture -- all that diversity should actually be mixed so well that it produces this unbelievable intellectual talent that you together can produce.”

Women accounted for 45.5 percent of the IMF’s staff and 21.5 percent of its managerial jobs at the end of 2010, according to the organization’s annual diversity report, which also called the number of employees from emerging-market countries “unacceptably small.”

Lagarde is the first woman to head the IMF. She replaces Dominique Strauss-Kahn, who resigned after his arrest last month on charges that include attempted rape. He has pleaded not guilty.

“I know that recent events have not been particularly pleasant for any of you nor for the institution as a whole,” Lagarde said to IMF staff, without mentioning Strauss-Kahn by name.

--Editors: Christopher Wellisz, Kevin Costelloe

To contact the reporters on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net; Sandrine Rastello in Washington at srastello@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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The Supercycle: A Longer Range View of Emerging Markets

By David Bogoslaw

(Corrects Morningstar data in seventh paragraph.)

Lots of investors say they adopt a long view, usually three to five years, when it comes to a particular investment. Some are taking that horizon even further—to 20 or 30 years, the "supercycle" that could last a generation or more. Some investment strategists say that industrialization and the expanding middle class in emerging economies from China to Brazil add up to a third industrial revolution, a prolonged period in which global economic growth shifts from developed nations in Europe and North America to Asia and South America.

Virginie Maisonneuve, head of global and international equities at Schroder Investment Management, uses shifting population growth, climate change, and the long-term outlook for commodities as a framework to understand the world and define the operating environment that companies must navigate. A commodities supercycle is based on the assumption that population growth, infrastructure buildout, and higher protein diets in emerging countries will support long-term demand and higher prices for industrial and agricultural commodities. Competition, demand, pricing, cost, and many other factors that affect how companies function will be touched by those themes, and in her portfolios are stocks that won't benefit or be especially hurt by any of those themes, she says.

Increasing urbanization and expectations for higher living standards as more people join the middle class underlie population growth forecasts for emerging economies, according to a 2010 special report on the supercycle by Standard Chartered Bank.

Although the belief that emerging markets will drive global economic growth in the future is fairly widely held, the supercycle isn't at the forefront of most investment managers' thinking. T. Rowe Price Group (TROW), which manages $32.4 billion in emerging market strategies, prefers to focus on how its assets will perform over the next three to five years, as opposed to the next 20 to 30 years at the heart of the supercycle thesis, says Jason White, a portfolio specialist at T. Rowe Price in Baltimore. Instead of grand themes such as climate change and shifting demographics, White says he considers which industries will likely benefit from emerging market trends. He likes infrastructure, wireless telecom, and banking.

For Schroder, a diversified asset manager in London that runs just under $300 billion in assets, the supercycle doesn't represent such a great stretch of the investing imagination. "The supercycle [describes] the role of large emerging market economies in the global economy," says Maisonneuve. "That is the evolution of the China theme I had for most of the past 25 years," with India and Brazil now joining China as key economic growth drivers for the world economy.

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