Russia, China Lead Biggest Emerging Market Surge in Two Decades

By Denis Maternovsky

Sept. 19 (Bloomberg) -- Russia and China led the biggest rally in emerging-market stocks in at least two decades as authorities around the world took steps to shore up banks and prevent a further flight from riskier assets.

Russia's ruble-denominated Micex Index jumped 25 percent and government bonds surged after President Dmitry Medvedev pledged $20 billion to end the nation's worst financial crisis since the 1998 default. China's CSI 300 Index jumped by a record 9.3 percent, led by Bank of China Ltd., after Beijing scrapped a stock-trading tax and said it will buy shares in three of the largest banks. The MSCI Emerging Markets Index jumped 6.9 percent to 820.73, the biggest gain since it was set up in 1987.

Markets rebounded as the government measures added to $220 billion poured into the world financial system this week to encourage lending, while U.S. and U.K. regulators considered restricting investors from betting on stock declines. U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed moving troubled assets from financial companies into a new institution yesterday.

``Stocks and fixed income are on fire,'' said Luis Costa, emerging-market debt strategist at Commerzbank AG in London. ``The fear premium on most of the credits is just too appealing.''

The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries fell 13 basis points to 3.87 percentage points, according to JPMorgan Chase & Co.'s EMBI+ index. The yield on the Russian government's 30-year dollar bonds fell 35 basis points to 6.77 percent, retreating from a four-year high.

Government Support

Medvedev ordered Russia's government to ``immediately'' consider committing funds to ensure ``the stability of the stock market,'' which was halted the past three days as the ruble- denominated Micex index plunged 25 percent. The dollar-based RTS Index rose 20 percent to 1,268.67, the biggest gain since its creation in 1995.

Russia's Finance Ministry earlier this week made $44 billion available for Russia's three largest banks, OAO Sberbank, VTB Group and OAO Gazprombank, as concern mounted that more financial companies would follow New York-based Lehman Brothers Holdings Inc. into bankruptcy.

Sberbank, Russia's biggest lender, soared 57 percent in Moscow at 2:15 p.m., when trading was suspended for a second time today. VTB Group, country's second biggest bank, jumped record 60 percent. OAO Gazprom, Russia's biggest company and its gas export monopoly, rose 33 percent.

The ruble rose to the highest level in a week against the central bank's dollar-euro basket to 30.3494 from 30.3868 yesterday. The Mosprime rate, a measure of overnight interbank lending rates in Russia, yesterday retreated by 3 percentage points from a record, and was little changed today at 8.12 percent.

Chinese Banks

Russian ``government actions appear appropriate so far,'' said Ronald Smith, chief strategist at Alfa Bank in Moscow. ``However volatility will likely remain high. We are not out of the woods yet.''

China Investment Corp., the nation's $200 billion sovereign wealth fund, will buy stakes in Industrial & Commercial Bank of China Ltd., Bank of China Ltd. and China Construction Bank Corp., the official Xinhua News Agency said in an announcement yesterday. China's 0.1 percent stock transaction duty will be removed for purchases and levied only on sales starting today, it said.

Shares in all three Chinese banks jumped by the 10 percent limit in Shanghai today.

India, Korea

``The stimulus package had an immediate impact on restoring investor confidence, which has been crushed by expectations of economic slowdown,'' said Hu Xiaodong, a Shanghai-based fund manager at Martin Currie Investment Management Ltd., which oversees $4 billion. ``The government may come up with more measures to boost the economy.''

India's benchmark Sensitive Index, or Sensex, gained 708.67, or 5.3 percent, to 14,024.27, its biggest gain since July. ICICI Bank Ltd., India's second-largest lender, gained 9.8 percent.

South Korea's Kospi index rose 4.6 percent, Indonesia's Jakarta Composite index added 5.8 percent and Thailand's SET Index climbed 4.1 percent.

To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net