Emerging Stocks Advance First Time in Four Days on Tech Rebound By Zahra Hankir and Harry Suhartono

Bloomberg Business week, October 28, 2013

Featuring Emad Mostaque, lead strategist for NOAH Capital Markets

Emerging-market stocks rose for the first time in four days as Samsung (005930) Electronics Co. led a rally in technology shares and South Africa’s benchmark index climbed to a record. The ringgit strengthened to a four-month high.

Samsung, the world’s largest smartphone maker, increased 2.3 percent to the strongest level since June 5 after at least two brokerages raised their share-price estimates. Delta Electronics Inc. (2308) advanced to a record in Taipei. South Africa’s FTSE/JSE Africa All Shares Index (JALSH) headed for its highest close as metals prices gained, while Poland’s WIG30 rose 0.7 percent. The ringgit appreciated the most versus the dollar among developing-nation peers on government plans to cut the budget deficit.

The MSCI Emerging Markets Index added 0.5 percent to 1,032.77 at 12:18 p.m. in London, set for the biggest increase since Oct. 18. Technology shares have posted the top gains among 10 industries in the 21-nation gauge this year, rising 11 percent as a group. Korea Investment & Securities Co. and HI Investment & Securities Co. raised their targets for Samsung after the company posted record third-quarter profit last week.

The rally in technology shares “looks justified to me for the companies with the right business model and growth prospects,” said Michael Ganske, who helps manage $8.5 billion of developing-nation fixed-income and currencies as the head of emerging markets at Rogge Global Partners Plc in London. “In general, all risk assets are benefiting from the strong risk sentiment at the moment.”

Price Estimates

The MSCI Emerging Markets Information Technology Index jumped 1.4 percent, heading for the biggest gain since Oct. 18. Delta Electronics rallied 3.3 percent after Taiwan’s Central News Agency said the display maker’s shipments will increase. Naver Corp. (035420), a South Korean web portal operator, surged 5.1 percent as E*Trade Korea Co. and Meritz Securities Co. raised their price estimates.

Russia’s Micex Index rose for a second day while Bank Pekao SA led gains on the WIG30 Index in Warsaw. OTP Bank Nyrt, Hungary’s largest lender, lost 1.2 percent, the most in two weeks, after state news agency MTI reported that the government had rejected a proposal from banks related to the cabinet’s plan to provide relief to mortgage borrowers. India’s S&P BSE Sensex Index fell 0.6 percent in its fifth day of losses.

Gold Fields Ltd. climbed 2.8 percent and African Rainbow Minerals Ltd. increased 2.3 percent in Johannesburg as copper and gold prices gained. The rand appreciated 0.1 percent against the dollar, while the ringgit strengthened 0.7 percent, the most among 24 emerging-market peers.

EM Valuations

Malaysia plans to introduce a 6 percent goods and services tax rate in April 2015 in an effort to shrink the shortfall between revenue and spending to 3.5 percent of gross domestic product next year from 4 percent in 2013, the government said on Oct. 25.

Emerging-market equities have rallied 4.5 percent this month after the Federal Reserve unexpectedly maintained monetary stimulus in September. The Fed, which starts a two-day policy meeting tomorrow, will probably keep its $85 billion monthly bond-buying program in place until March, according to a Bloomberg survey of economists.

The MSCI gauge, which is down 2.2 percent this year, trades at 10.7 times projected 12-month earnings, compared with a multiple of 14.4 for the MSCI World Index of developed-nation shares, which has surged 20 percent in 2013.

“EM valuations are near trough levels relative to developed markets as nominal-return starved investors look for safety,” Emad Mostaque, a London-based strategist at emerging markets specialist Noah Capital Markets, said by e-mail. While Mostaque is “very bearish” on technology stocks, “the tech sector in EM is receiving a tailwind from a rerating in the Internet space in particular, as well as a recovery in the component names,” he said.

Zoomlion Heavy Industry Science & Technology Co. jumped 4.8 percent in Hong Kong, the most in seven weeks, after the Chinese Xinkuaibao newspaper apologized for publishing unverified stories questioning the finances of the construction-machinery manufacturer.