By Carla Mozee, MarketWatch
LOS ANGELES (MarketWatch) — A slate of stocks and other assets linked to China’s growth prospects climbed Thursday, keying off an unexpected plan to cut borrowing costs as officials in the world’s second- largest economy work to fend off further slowing.
So-called commodities currencies including the Australian dollar and China-related exchange-traded funds benefitted during the North American trading session after the People’s Bank of China said it would cut the benchmark lending and deposit rates by a quarter-percentage point, to 6.31% and 3.25%, respectively. Read more on China rate cut.
Bernanke testifies on economy
Paul Vigna talks with Sudeep Reddy on Fed Chairman Bernanke's testimony to Congress, and Tomi Kilgore looks at whether a "Doji" moment in the S&P 500 portends a summer market rally. Photo: Reuters.
Among exchange-traded funds, the SPDR S&P China ETF /zigman2/quotes/209472236/composite GXC +1.28% rose 2.3%. The iShares FTSE China 25 Index Fund /zigman2/quotes/208670743/composite FXI +2.94% was pushed up by 1.9% and the iShares MSCI Emerging Markets Index Fund /zigman2/quotes/201454250/composite EEM +0.95% advanced 1.3%.
Thursday’s move by the central bank “is telegraphing that evaluation [by Chinese officials] of the economy has descended enough that they think they have to act more directly by promoting credit...and cut through the interest-rate stream,” said Enrique Alvarez, head of Latin American research at IDEAglobal, in a telephone interview.
“It points to more of a deterioration of the economy than they are willing to admit to, and that the market has, perhaps, accommodated to,” he said, with the country facing headwinds including Europe’s debt crisis and slowing domestic loan growth.
In the foreign exchange market Thursday, the Australian and Canadian dollars and the Chilean peso -- currencies that are sensitive to Chinese demand for resources -- rose against the U.S. dollar.
The Aussie dollar /zigman2/quotes/210560947/realtime/sampled AUDUSD +0.3396% briefly reclaimed parity against the greenback as it hit an intraday high of $1.0002. Chile’s currency /zigman2/quotes/210561984/realtime/sampled USDCLP +0.3132% jumped against the U.S. dollar more than 1%, with the greenback buying 501.20 pesos compared with 506.62 reals in the previous session. The peso is a play on copper prices as Chile is the world’s largest producer of copper. Get more currencies data.
Other copper plays saw gains, with U.S.-listed of Canada’s Ivanhoe Mines /zigman2/quotes/207656050/delayed CA:IVN 0.00% and Teck Resources each higher by more than 2%.
Recent data from China have illustrated sluggish conditions, including continued contraction in the manufacturing sector and the weakest pace of expansion in the services sector in more than a year. Fitch Ratings this week noted slowing credit growth, saying it will “be difficult to see a significant turnaround in economic growth absent a rebound in credit.”
At Capital Economics, analysts warned of the impact on emerging markets if Chinese activity were to sharply cool. Read more about China’s impact on emerging markets.
China grew at a below-than-expected rate of 8.1% in the first quarter of this year. Officials are aiming for the growth of 7.5% to 8% this year “and will make every effort possible to push demand to try and make these figures materialize,” said Alvarez.
Equity trading was closed on Brazil’s Bovespa /zigman2/quotes/210597947/delayed BR:BVSP +0.83% for a holiday, but the market may be poised for gains on Friday in the wake of the China rate-cut news, said Alvarez. China is Brazil’s largest trading partner.
But investors were able to react Thursday through U.S.-listed shares of Vale /zigman2/quotes/204339679/composite VALE +3.01% , the world’s largest iron more miner and the world’s second-largest nickel miner. Its stock surged 3.7%. Also higher were U.S.-listed shares of Brazilian state-run oil producer Petrobras /zigman2/quotes/200745132/composite PBR -0.90% , up 1.8%, and the iShares MSCI Brazil Index Fund /zigman2/quotes/208893627/composite EWZ +0.50% rose 2%.
Canada’s dollar /zigman2/quotes/210561978/realtime/sampled USDCAD -0.2381% rose, as the U.S. dollar recently bought C$1.0246 compared with C$1.0276 in the prior session. But Canada’s equity benchmark turned lower, with gold stocks struggling in part after U.S. Federal Reserve Chairman Ben Bernanke - while saying the Fed stood ready to protect the U.S. economy should the European crisis worsen - didn’t offer an indication for further monetary easing in the immediate future. Read more on Bernanke.