China outlook helps boost emerging stocks
by Jeremy Gaunt

Reuters    Translate This Article
9 November 2009

LONDON (Reuters) - Firmer commodity prices and rising equities lifted emerging markets on Monday with their benchmark stocks index up 1.5 percent and spreads narrowing.

Markets were also lifted by a vote of confidence in China from leading ratings agency Moody's while participants at a World Economic Forum (WEF) event in New Delhi saw solid growth returning to India after next year.

The outlook in Europe was less bullish, however, with the International Monetary Fund delaying work with Ukraine until after January elections adding to its problems with Romania, and Turkish industrial output falling.

Emerging Europe's biggest lender, Unicredit, said non-performing loans will rise to 35 percent of all loans in Ukraine and 39 percent in Kazakhstan.

But these were the only countries in the region where bad debt ratios will reach the level of previous financial crises such as in Asia or Argentina.

MSCI's emerging market stock index was up 1.5 percent for a gain of nearly 4 percent this month. Spreads between emerging market sovereign debt and U.S. Treasuries narrowed 6 basis points to 311, according to JPMorgan .

'We have started the week certainly on a firmer footing,' said Nigel Rendell, senior emerging markets strategist at RBC Capital Markets.

'We have seen Asian equity markets stronger (and) most Asian currencies. We also got some positive news from China.'

Moody's Investors Service said it had changed the outlook for China's A1 credit rating to positive from stable to reflect a 'resilient, robust and relatively stable' economic performance and the 'negligible' risk of a balance-of-payments meltdown.

The outlook for fellow BRIC India was also given a thumbs up of a sort by participants at the New Delhi WEF business meeting.

'Following five years of nearly 9 percent growth, the (Indian) economy grew at a rate of 6.7 percent in 2008-2009 and growth is predicted at 6.5 percent for 2009-2010. Most predicted 9 percent growth beyond 2010,' the WEF said.

UKRAINE, ROMANIA

There was little change in the cost of insuring Ukrainian and Romanian debt, despite the problems both are having with the International Monetary Fund.

IMF chief Dominique Strauss-Kahn told Reuters television during the weekend G20 meeting in Scotland that the fund would resume work with Ukraine only after January elections.

Ukrainian President Viktor Yushchenko—who faces a Jan. 17 vote battle to keep his post—signed a wage bill last month that flaunted IMF recommendations and put a further strain on the budget.

Elections have also prompted IMF to delay its aid review to Romania, where a centrist government was toppled last month.

'Much will depend on what the new balance of political power looks like. A lasting interruption of the aid flows would be dangerous for the leu,' Commerzbank said in a note.

The lieu was slightly weaker against the euro at 4.30 euros.

(Editing by Toby Chopra)

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