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Emerging Stocks Rise Most in Three Weeks on Obama Victory

Date: Wednesday, November 7, 2012
Author: Anuchit Nguyen, Michael Patterson and Maria Levitov, Bloomberg

Emerging-market stocks rose, driving the benchmark index to its biggest gain in three weeks, and currencies strengthened after U.S. President Barack Obama won re-election.

The MSCI Emerging Markets Index (MXEF) climbed 0.6 percent to 1,012.22 at 12:15 p.m. in London, the steepest advance since Oct. 17 on a closing basis as all 10 industry groups increased. China Mobile Ltd. (941), the world’s biggest phone company by subscribers, rose the most in five months after the Standard reported the telecoms provider will start a 4G mobile data service in Hong Kong this year. Harmony Gold Mining Co., Africa’s third-largest producer of the metal, had its biggest advance in seven weeks as profit beat estimates. Eletropaulo Metropolitana SA, the Brazilian unit of AES Corp., fell for a second day after profit trailed projections.

Obama’s defeat of Republican Mitt Romney increases the odds that the U.S. Federal Reserve will maintain the third round of bond purchases known as quantitative easing, designed to boost the world’s largest economy, according to Michael Ganske, head of emerging-market research at Commerzbank AG in London. Countries in the MSCI index send about 17 percent of their exports to the U.S. on average, according to the World Trade Organization.

“A clear-cut win for Obama is good news,” Ganske said by email. “The political agenda of Romney had some question marks, such as naming China a currency manipulator and continuation of QE3.”

Fed Stimulus

Romney had pledged to label China a currency manipulator and said he disagrees with the Fed’s measures to stimulate the economy and would replace Chairman Ben S. Bernanke at the end of his term in January 2014.

Obama’s victory means the value of the yuan won’t escalate into a major trade issue that would slow the global economy, Arjuna Mahendran, the Singapore-based head of Asia investment strategy at HSBC Private Bank, which oversees $409 billion, said in a telephone interview today.

South Korea’s won gained 0.5 percent per dollar to the strongest level in almost 14 months and Russia’s ruble added 0.6 percent, the most in three weeks.

The MSCI Emerging Markets Index surged 108 percent during the Fed’s first round of bond purchases, known as quantitative easing. The gauge has climbed 3.1 percent since the Fed announced a third round on Sept. 13. The MSCI index’s 30-day volatility, a gauge of price swings, dropped to 8.4, headed for the lowest closing level since January 2006.

Trading Volumes

The election result will help bolster stocks in the U.S. and Taiwan, Taipei-based Broadcasting Corp. of China reported, citing the island’s Financial Supervisory Commission Minister Chen Yu-chang.

Trading volumes for shares in Taiwan’s Taiex Index were 23 percent above the 30-day average, according to data compiled by Bloomberg. Volumes were 21 percent higher for the BSE India Sensitive Index and 33 percent higher for Poland’s WIG20 Index.

The Taiex (TWSE) gained 0.7 percent and India’s Sensex increased 0.5 percent, its sixth straight day of gains. The WIG20 rose 0.3 percent in Warsaw as the central bank cut interest rates.

The Hang Seng China Enterprises Index (HSCEI) of mainland companies climbed 0.7 percent, snapping a two-day decline, before the Chinese Communist Party’s leadership congress that starts tomorrow.

Brazil’s Bovespa index fell 0.5 percent. Russia’s Micex slumped 0.2 percent, as oil slid 0.8 percent in New York. The Philippine Stock Exchange Index dropped 0.7 percent, paced by a 2.6 percent slump in Philippine Long Distance Telephone Co., the nation’s largest company by market value.

Fiscal Cliff

The MSCI Emerging Markets Index has climbed 10.4 percent this year, trailing an 11.2 percent increase by the MSCI World Index. (MXWO) The emerging-markets index trades at 11.6 times estimated earnings, compared with the MSCI World’s multiple of 13.4, according to data compiled by Bloomberg.

Obama will need to address a so-called fiscal cliff of more than $600 billion in tax increases and spending cuts that take effect in 2013 unless Congress can reach a budget compromise.

“Obama’s economic policies are well known, so it’s not difficult to imagine he will continue in the same way as he did in the past four years,” U.R. Bhat, managing director of Dalton Capital Advisors India Pvt. in Mumbai, said in a phone interview today. “There will be a relief rally for next few days and after that the hard economic issues will occupy centre stage. The biggest issue is the fiscal cliff from January. That’s something the markets will be worried about.”

China Mobile

China Mobile rose 2.5 percent, the biggest gain since June. The company plans to start 4G mobile data service in Hong Kong by the end of the year, the Standard in Hong Kong reported, citing unidentified “experts.” ING Investment Management’s Manu Vandenbulck, a senior portfolio manager, likes China Mobile on the potential for growth of mobile usage in China, he said in an interview in London published after market closed on Nov. 6.

Harmony Gold climbed 4.7 percent after saying first-quarter profit jumped almost fivefold as output and prices increased. Gold gained for a third day in London, heading for the longest winning streak in two months.

TVN SA, Poland’s second-largest television network, jumped 2.6 percent, the most in three weeks, after posting a higher- than-expected net income in the third quarter. KGHM Polska Miedz SA, Poland’s sole copper and silver producer, increased 1.7 percent to a two-week high as copper advanced for a second day in London.

Eletropaulo slipped 0.7 percent after reporting third- quarter net income of 13.7 million reais ($6.7 million), compared with the average estimate of 46.4 million reais in a Bloomberg survey of analysts.

Largan Precision Co. (3008) jumped 7 percent after Macquarie Group Ltd. upgraded the stock to outperform, the equivalent of buy, from neutral. A gauge of information-technology companies in the MSCI Emerging Markets Index climbed for an eighth day, the longest winning streak since January.

Evergrande Surges

Evergrande Real Estate Group (3333) rose 9.3 percent, the most in since December 2011, in Hong Kong after reporting its highest single-month contract sales in October. BYD Co. Ltd. (1211), the Chinese carmaker partly owned by Warren Buffett’s Berkshire Hathaway Inc., surged 11 percent in Hong Kong, trading above its 200-day moving average for the first time since May 4.

Korea Electric Power Corp. (015760), the nation’s monopoly distributor, dropped 3 percent in Seoul to a three-week low. Chief Executive Officer Kim Joong Kyum offered to resign from the state-controlled company, according to Miyon Lee, a spokeswoman at President Lee Myung Bak’s office.

To contact the reporters on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net; Michael Patterson in London at mpatterson10@bloomberg.net; Maria Levitov in London at mlevitov@bloomberg.net