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Stocks at 4-1/2 mth high, Turkey record peak

Turkey stocks at record high, lira rallies post-referendum.

September 13, 2010 1:33 by

Emerging stocks rose to 4-1/2 month highs on Monday after a strong set of Chinese factory data confirmed the economy remains buoyant, and Turkish stocks hit record highs following a referendum on the constitution.

A new Basel deal on global bank rules that gave lenders some respite before having to raise fresh capital helped push up stock markets around the world and fired up appetite for riskier assets. Data on Saturday showed Chinese factories increased production in August and money growth easily topped analysts’ expectations, despite government efforts to clamp down on bank lending and property speculation.

“The Chinese numbers were helpful and people are more relieved than anything else. Clearly the second half won’t be as strong as the first but probably that’s a good thing as (the pace of growth) would have been unsustainable,” said Nigel Rendell, senior emerging markets analyst at RBC Capital Markets.

“The banking regulations … have boosted equity markets and the banking sector as well, which is essential to emerging markets. In general, anything that’s seen as a bit risky is doing well.”

The MSCI emerging equities index  jumped by 1.5 percent to its highest in 4-1/2 months and the Thomson Reuters emerging Europe index tested one-month highs.

Chinese stocks  rose 1 percent while Indian markets  gained 2.2 percent. Turkish assets rallied after 58 percent of voters backed government reforms in a referendum on Sunday — an approval margin analysts said reinforced stability in Turkey and indicated the government could win a third term next year. Prior to the referendum, assets had priced in only a moderate government win with a “yes” vote of up to 55 percent.

“This is clearly a major boost for the government’s position ahead of next year’s elections and a major supportive for markets,” said Simon Quijano-Evans, EMEA economist at Cheuvreux, in a client note.

“Turkey remains one of the global success stories from an economic point of view, and it looks like politics is moving ahead too.”

Turkish stocks  gapped up to a record high above 62,000 on Sunday’s referendum, a gain of more than 2 percent on the day, the lira <TRY=> hit a four-week high and five-year credit default swaps fell 4 bps to 162 bps, according to Markit.

Emerging sovereign debt spreads tightened by 7 basis points to 272 bps over U.S. Treasuries .

Tight debt spreads have encouraged emerging market borrowers after the summer lull.

Following more than $4 billion in emerging sovereign issuance last week from the Czech Republic, Lithuania, Montenegro and Philippines, Sri Lanka is holding an investor roadshow starting on Wednesday.

The rand  hit a 2-1/2 year peak against the dollar, with bond yields seen relatively juicy despite last week’s rate cut to a three-decade low of 6.0 percent.

Analysts see the rate cut as a spur to domestic growth, and South Africa’s five-year CDS fell 2 bps to 148 bps

The Romanian leu hit an 11-day low against the euro  ahead of a debt tender which may force Romania either to scrap a self-imposed yield cap of 7 percent or to put even more emphasis on money markets and euro debt.

Investors are demanding higher rates of return ahead of a series of crunch votes on the coalition government’s austerity measures which could derail a 20 billion euro International Monetary Fund-led bailout.

Romania’s five-year CDS fell 7 bps, however, to 370 bps, in line with the global trend.

Dubai’s five-year CDS also fell 7 bps to 450 bps, after state-owned Dubai World reached a formal deal to restructure almost $25 billion in debt on Friday.

(Additional reporting by Sujata Rao; Editing by Ruth Pitchford)

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