Emerging Markets are Still Hot - YTD Performance

Country Performance

MSCI Index	YTD	1 Year	3 Year	5 Year	10 Year
HUNGARY	20.2%	-4.7%	-6.7%	-0.6%	16.1%
CZECH REPUBLIC	16.3%	7.9%	-10.8%	4.6%	23.8%
RUSSIA	16.3%	27.7%	-7.3%	0.8%	20.5%
POLAND	6.9%	15.5%	-9%	2.5%	10.5%
KOREA	6.5%	29.8%	5.1%	6.8%	18.6%
MOROCCO	5.5%	9.6%	-11.3%	9.4%	11.1%
INDONESIA	4.7%	24.8%	11.2%	21.3%	28.9%
MALAYSIA	3.7%	26.9%	8.5%	14.9%	11.8%
THAILAND	3.5%	38.6%	8.8%	13.4%	19.1%
CHINA	2.9%	7%	1.7%	14%	13.2%
BRAZIL	2%	6.4%	1.7%	15.3%	19%
MEXICO	0.5%	17.5%	1.1%	9.1%	15.7%
COLOMBIA	0%	27.9%	23.5%	13.9%	38.3%
SOUTH AFRICA	-2.8%	22.1%	11.4%	6%	15.3%
TAIWAN	-4.3%	17.8%	-1.1%	4%	2.8%
PHILIPPINES	-4.4%	20.3%	4.2%	12.3%	8.8%
INDIA	-5.2%	8%	2.8%	10.8%	18.3%
TURKEY	-5.5%	7.8%	8.6%	2.7%	15.7%
CHILE	-8.3%	30%	10.6%	16.1%	16.3%
PERU	-14%	28.2%	6.2%	26.4%	27.4%
EGYPT	-23.7%	-24.5%	-22%	-3.5%	19.2%
Source: MSCI

BRICs Lose for Second Time in Decade as America Takes Over

(Bloomberg) -- Stocks in developed countries are rising the most since 1998 while emerging markets slump, a sign the U.S. is returning to its role as the engine of world growth aided by a recovery in Europe.

The MSCI World Index of equities in 24 countries rose 6.1 percent for 2011 through yesterday, the best annual start in 13 years, and the MSCI Emerging Markets Index of shares in nations such as Brazil, Russia, India and China lost 2.7 percent. A Morgan Stanley gauge of stocks such as Archer Daniels Midland Co. and Deere & Co. meant to rally when inflation expectations match Federal Reserve targets added 46 percent since August, almost double the Standard & Poor’s 500 Index.

While emerging-market equities beat developed countries every year except 2008 in the past decade, they’re falling now as Brazil, Russia, India and China battle inflation. Thornburg Investment Management Inc. and Barclays Plc expect bigger gains from developed-market equities after German Chancellor Angela Merkel and French President Nicolas Sarkozy pledged to prevent the breakup of the euro and the Fed began buying $600 billion in Treasuries to spur growth.

“You’ve got more willingness to take risk with equities in developed markets,” said Santa Fe, New Mexico-based William Fries, who runs the $26.7 billion Thornburg International Value Fund that beat 92 percent of peers since 2006. “At the beginning of the year, the world kind of turned upside down. There wasn’t a great deal of money flowing into developed markets over the last couple of years, and that’s starting to change.”

Asian Financial Crisis

The last time the developed-nation index won by this much to start a year was 1995. It went on to gain 47 percent in the next three years, and the emerging-nation gauge fell 4.2 percent through the end of 1997 after the Asian financial crisis.

While the MSCI World trailed the gauge of emerging nations by an average of 16 percentage points annually since 2001, it held up better during the financial crisis, losing 42 percent versus 54 percent for emerging markets in 2008.

Intensifying violence in Libya, holder of Africa’s largest oil reserves, pushed the MSCI Emerging Markets Index down 1.9 percent at 4:34 p.m. in New York today. The MSCI World fell 1.6 percent.

Investors are betting that the U.S., with gross domestic product that’s almost three times greater than China and Japan, will drive global economic growth. U.S. imports of $203.5 billion in December were the most in two years. The Conference Board’s index of U.S. consumer confidence climbed to an almost three-year peak in January, and the Institute for Supply Management-Chicago Inc. said businesses expanded in January at the fastest pace since July 1988.

Doubled Since 2009

The S&P 500, the benchmark measure of U.S. shares, closed at a 32-month high of 1,343.01 on Feb. 18. It has almost doubled since March 2009 and risen three straight weeks as corporate profits surpassed Wall Street estimates for eight straight quarters, sending the S&P 500’s valuation to an eight-month high of 16 times reported income.

Last week, the MSCI World rose 1.6 percent. The MSCI Emerging Markets Index of 21 countries gained 2.8 percent.

Greece, Italy and Spain are leading developed markets higher with gains exceeding 9.6 percent this year. Stocks in the nations, among Europe’s most indebted, rebounded from the worst performances in 2010 amid growing confidence France and Germany will keep the region’s currency intact. The euro has risen versus 13 of 16 major counterparts this year, including Brazil’s real and South Africa’s rand, after trailing 15 in 2010.

U.S. Mutual Funds

Investors are pouring money into equity mutual funds that buy shares in the U.S., the world’s largest stock market, with shares valued at $16.6 trillion. Domestic equity funds had net inflows of $4.92 billion during the week that ended Feb. 9, more than any time in almost two years, according to data from Investment Company Institute, a Washington-based trade group. Non-U.S. stocks attracted $928 million.

“In an ideal portfolio, we’d pick our biggest overweight in the developed world,” Manpreet Gill, a Singapore-based strategist at Barclays Wealth, which oversees about $225 billion, said in a Bloomberg Television interview on Feb. 15. “That’s where we’re seeing a lot of the economic surprise.”

Developed nations, recovering from the worst financial crisis since the Great Depression, have kept interest rates low, with the Fed holding its target near zero since December 2008.

Interest-rate derivatives show traders anticipate U.S. economic growth won’t spark runaway price gains. Forward contracts on 10-year interest-rate swaps that allow investors to lock in fixed-rate payments for 10 years a decade from now have risen to 5.38 percent, or where they were before the financial crisis began in 2008.

German Reunification

While countries sharing the euro have exceeded the European Central Bank’s inflation limit, policy makers have kept their benchmark rate at a record low of 1 percent for almost two years as they apply one monetary policy to 17 nations. Germany’s economy grew 3.6 percent last year, the most since reunification two decades ago. Greece contracted 4.5 percent and Spain’s economy declined 0.2 percent.

Attempts by emerging-market central banks to battle inflation are holding back their equities, Gill said. Brazil’s central bank lifted its benchmark overnight rate by 50 basis points, or 0.5 percentage point, to 11.25 percent on Jan. 19.

India raised rates to a two-year high on Jan. 25. China has ordered lenders twice this year to set aside more money as reserves. Russia increased banks’ reserve requirements for the first time since 2009 on Jan. 31 to stem the fastest inflation in a year.

Dangerous Levels

The World Bank said Feb. 15 that global food prices have surged to dangerous levels, pushing 44 million more people into extreme poverty since June. The 2.9 billion people in Brazil, Russia, India and China spend about 19 percent of their income on groceries, compared with 6 percent in the U.S., according to data compiled by London-based Euromonitor International. Corn futures surged 94 percent in the past year through yesterday, and wheat jumped 70 percent after drought and floods damaged crops from Russia to Argentina.

While emerging-market policy makers are attempting to restrain growth, they are helping the long-term health of their nations, according to Jason Hsu, chief investment officer of Research Affiliates LLC, which oversees $61 billion in Newport Beach, California.

“Emerging-market central banks have been proactive, much more conservative in their willingness to push the curve of prosperity to the future,” he said. “These are responsible policies as long as it’s not done to an extreme. In the long run, it could provide a better environment for capital investment.”

Inflation Disparity

The inflation disparity between developed and emerging markets is clearer in the stock market than anywhere else. The Morgan Stanley Inflation Basket of 77 U.S. companies has risen 24 percent since Oct. 15, when the New York-based bank created the index of stocks, including raw-material and energy companies, that are poised to benefit from higher prices. The S&P 500 gained 14 percent since then.

Producers of oil, natural gas and coal in the MSCI Emerging Markets advanced 2 percent this year through yesterday. That compares with the 11 percent rally in MSCI World Energy Index.

Archer Daniels Midland, the world’s largest grain processor, climbed 25 percent this year. The Decatur, Illinois- based company that got 65 percent of fiscal 2010 revenue from the U.S. and Germany beat analysts’ profit estimates on Feb. 1 after record grain exports.

Deere, Chaoda Modern

Deere, the world’s largest farm-equipment maker that gets 65 percent of sales from the U.S. and Canada, raised its 2011 forecast last week as higher crop prices boosted North American sales of tractors and combines. Shares of the Moline, Illinois- based company have risen 14 percent this year.

Chaoda Modern Agriculture (Holdings) Ltd., a Chinese vegetable grower that’s based in Hong Kong, is down 14 percent in 2011. Jakarta-based PT Astra Agro Lestari, Indonesia’s biggest listed plantation company, has fallen 16 percent this year even after palm oil prices reached an almost three year- high on Feb. 10.

Toyota Motor Corp. and Honda Motor Co., Japan’s largest carmakers, advanced at least 14 percent in 2011. Both companies are based in Tokyo. The Dow Jones Transportation Average, a measure of U.S. truckers and shippers that are considered proxies for the economy, reached a 32-month high on Feb. 16 and gained 3.7 percent this year.

Sport-Utility Vehicles

Mahindra & Mahindra Ltd., India’s biggest sport-utility vehicle maker, slumped 17 percent this year after oil prices reached a 27-month high of $92.84 a barrel. The Mumbai-based company said in its Feb. 9 earnings release that it’s concerned about higher commodity prices and further rate increases.

The cost of using options to protect against losses in developing-nation stocks is near a two-year high compared with contracts on U.S. stocks. Implied volatility, the key gauge of prices, for three-month options on the iShares MSCI Emerging Markets Index exchange-traded fund is 1.5 times the level for options on the SPDR S&P 500 ETF and was 1.7 times higher on Feb. 9, the highest level since November 2008.

“The skies are bluer in the developed markets,” said John Praveen, Newark, New Jersey-based chief investment strategist at Prudential International Investments Advisers, a unit of Prudential Financial Inc., which oversees $750 billion. “You have low inflation, low interest rates and growth picking up.”

Emerging Markets Hearts Commodities

above - From Michael Cembalest of JPMorgan
below - Courtesy of the World Bank

Investors pour money into emerging markets

Investors are rebalancing their portfolios by rushing into emerging markets in search of higher-yielding assets. Some investors, however, are warning about risks associated with the emerging-market boom. Meanwhile, finance chiefs and central bankers are debating currency issues, including intervention.

Emerging markets are still under-represented in global market indices. For example, emerging markets account for $3 trillion, or only 15 percent of market capitalization of the benchmark MSCI world index.

http://www.cnbc.com/id/39576120

Emerging Stocks Rise to 27-Month High for Fifth Weekly Gain

(Bloomberg) -- Emerging-market stocks rose, sending the benchmark index to the highest level in 27 months, and currencies strengthened as reports showed China’s manufacturing grew and developing-nation fund inflows hit an 11-month high.

The MSCI Emerging Markets Index climbed 1 percent to 1,086.09 by 5 p.m. New York time, a fifth straight weekly advance. The Bloomberg-JPMorgan Asia Dollar Index rose 0.5 percent to a two-year high as India’s rupee gained 1.1 percent. The extra yield investors demand to hold emerging-market debt over U.S. Treasuries fell six basis points to 2.71 percentage points, the lowest level in five weeks, JPMorgan Chase & Co. data show.

China’s manufacturing expanded at the fastest pace in four months in September, adding to signs that growth is stabilizing in the world’s fastest-expanding major economy. Investors poured $4.3 billion into emerging-market equity funds in the week ended Sept. 29, the biggest amount since October 2009, and the funds are poised for record annual inflows, data compiled by EPFR Global showed.

“It’s a liquidity-driven market that’s driving investor confidence, and with the troubles that we see in Europe and the U.S., more money is basically flowing toward Asia,” said Pankaj Kumar, who oversees about $560 million as chief investment officer of Kurnia Insurans Malaysia Bhd. “We are in a super- sweet spot and we’re getting all the attention.”

The 21-nation MSCI index climbed for three consecutive days and completed its longest weekly stretch of gains since March. The gauge rallied 17 percent in the third quarter, its best quarterly performance in a year. Developing economies will expand 6.4 percent next year, compared with 2.4 percent growth in advanced nations, the International Monetary Fund forecast in July.

Fed Outlook

The MSCI Emerging index climbed to its highest level of the day after Federal Reserve Bank of New York President William Dudley said the central bank has options to add stimulus without major drawbacks, one of the clearest signs that policy makers will start a second round of unconventional monetary easing. His comments coincided with a U.S. government report showing consumer spending rose more than forecast in August as incomes climbed.

China’s purchasing managers’ index rose to 53.8 from 51.7 in August, the country’s logistics federation and statistics bureau said in an e-mail. The median forecast of 15 economists surveyed by Bloomberg News was 52.5. Readings above 50 indicate expansions. Chinese exchanges were closed today for a holiday.

Goldman Growth Estimate

India’s rupee rose to the strongest level versus the dollar in six months, while the Bombay Stock Exchange Sensitive Index climbed 1.9 percent to the highest level since January 2008. Goldman Sachs Group Inc. raised its growth forecast for India, saying the economy is likely to expand 8.5 percent this financial year, up from its previous estimate of 8.2 percent.

Russia’s Micex Index advanced 1.1 percent, the highest level since April, as oil and metal prices rallied on the Chinese manufacturing data. OAO Lukoil added 0.9 percent, while OAO GMK Norilsk Nickel, the nation’s biggest mining company, rose 1 percent.

The Bovespa stock index gained, completing the biggest weekly advance since July, as a drop in Brazilian manufacturing eased bets for higher borrowing costs and commodities gained. PDG Realty SA Empreendimentos & Participacoes, the Brazilian homebuilder, surged 4.2 percent.

Indonesia’s Jakarta Composite Index advanced to a record for a sixth straight day, while the Thai SET Index rose 0.3 percent to the highest level since November 1996. South Korea’s Kospi Index climbed 0.2 percent to the highest since May 2008.

The Hungarian forint rallied to the strongest level in four months on speculation local government elections on Oct. 3 will help solidify support for Prime Minister Viktor Orban’s government, which has pledged to reduce the budget deficit. The forint gained 0.9 percent versus the euro for the best gain among major emerging-market currencies.

Citigroup : Emerging-Market Stocks to Rally 20%

(Bloomberg) -- Emerging-market stocks will rally 20 percent to 25 percent by the end of this year as the world economy avoids a double-dip recession and attractive valuations lure investors, according to Citigroup Inc.

Most of the rally will come in the fourth quarter as shares stay in a “trading range” during the historically weak months of August and September, New York-based strategist Geoffrey Dennis wrote in a report dated yesterday. Developing nations will lead the global economic recovery with growth of 6.8 percent this year and 6 percent in 2011, Dennis wrote.

“Fears of a ‘double-dip’ are overdone,” Dennis wrote. Emerging markets “should remain the strongest part of the global recovery story,” he wrote.

The MSCI Emerging Markets Index has rallied 4 percent this week, heading for the best one-week gain in four months. The 21- country index is still down 9.3 percent from this year’s peak, on concern China’s steps to curb inflation and spending cuts by governments worldwide will jeopardize economic expansion. Emerging-market shares trade for 10.8 times estimated earnings, a nine percent discount to the long-term average, Dennis wrote.

The strategist upgraded his rating of the Europe, Middle East and Africa region to “neutral” on better earnings momentum and low stock valuations. He downgraded Latin America to “underweight” on weaker earnings growth and rising interest rates. Asia remains “overweight,” the note said.

Thailand was upgrade to “overweight” and South Africa, Poland, Egypt and Malaysia were lifted to “neutral.” Citigroup downgraded Brazil to “neutral” and India from to “underweight.”

Russia, Turkey, Korea, Taiwan and Thailand are the top country picks, Dennis wrote. His favorite industries are raw- material producers, technology and industrial companies.

Lira Rally Shows Turkey Growth Catching Up to China

(Bloomberg) -- The Turkish lira, which trailed emerging market currencies from the Brazilian real to the Russian ruble last year, is attracting bullish recommendations after first-quarter economic growth approached that of China.

Barclays Capital, Societe Generale SA and UniCredit SpA say the lira will rise against the dollar in 2010, with forecasts ranging from 6 percent to 12 percent. The lira has gained 3.1 percent in April, the best performance among 26 emerging market currencies tracked by Bloomberg.

“The lira’s kicked in because of the economic rebound in Turkey, which we see as stronger than other countries in the region,” said Christian Keller, chief economist for emerging Europe at Barclays Capital in London, who estimates the currency will rise to 1.40 per dollar from 1.4825 on April 23. “We recommend investors buy on any weakness.”

Turkey is recovering from its deepest recession as tensions between Prime Minister Recep Tayyip Erdogan and the army ease after the February arrest of officers who allegedly plotted to overthrow the government. The central bank says it may raise interest rates, luring investors to the country’s assets. Stocks in Istanbul rose to a record this month and investors have pushed yields on two-year bonds to all-time lows.

The lira, the world’s least valuable currency as recently as 2004, has risen on 20 of 27 trading days since March 18, when the central bank said it “won’t hesitate” to increase the benchmark borrowing rate if prices increase faster than expected. The lira climbed 0.4 percent to 1.4765 at 5:35 p.m. in Istanbul, the biggest gain in nine days.

10% Growth

The central bank cut rates 13 times since October 2008 to a record 6.5 percent. Inflation accelerated to 9.6 percent in March from a three-decade low of 5.1 percent in October.

Turkey’s gross domestic product may have expanded at an annual rate of more than 10 percent in the first quarter after growing 6 percent in the last three months of 2009, Deputy Prime Minister Ali Babacan said April 2. Among the world’s 20 biggest economies, only China is growing faster at 11.9 percent. Babacan’s predictions are “realistic,” said Yarkin Cebeci, an economist at JPMorgan Chase & Co. in Istanbul.

The International Monetary Fund increased its forecast for Turkish growth this year to 5.2 percent from 3.7 percent, saying April 21 that the economy “has already recovered from the initial external shock” of the global financial crisis and capital flows and trade are returning to normal. Turkey’s economy shrank 14.7 percent in the first quarter of last year, the deepest contraction since quarterly records began in 1995.

Turkey ‘Decoupled’

“The economy has decoupled from the region and the central bank does not have a problem with a stronger currency, unlike Poland and eventually, I believe, Hungary,” Gyula Toth, emerging markets strategist at UniCredit in Vienna, said April 21. The bank is “the only one in the region that may raise interest rates as inflation is ticking up.”

Toth estimates the lira will strengthen to 1.35 per dollar this year.

The lira’s 9.4 percent gain over the past year trailed the 20 percent surge in the Brazilian real, the 17 percent rally in the South African rand and the 15 percent advance in the Polish zloty. Only Mexico’s peso underperformed the lira among major emerging market currencies, rising 7.6 percent.

Poland’s currency fell the most in two months on April 19 as the government supported central bank attempts to stall the zloty’s appreciation. The bank on April 9 bought foreign currency to weaken the zloty for the first time in 12 years.

Turkey’s central bank has no target for the lira, Governor Durmus Yilmaz said April 20 during a meeting in Ankara.

The lira reached a high of 1.15 per dollar in January 2008, then tumbled as much as 36 percent to 1.79 as the demise of Bear Stearns Cos. and Lehman Brothers Holdings Inc. roiled global markets.

Easing Tensions

Investors should buy the lira, and sell the rand and forint, because the Turkish currency is undervalued and may rise to as much as 1.30 per dollar this year, said Murat Toprak, emerging market currency strategist at Societe Generale in London, in an April 15 interview. Toprak first recommended the lira on Feb. 25, when he forecast it would reach 1.45.

Scores of army officers, members of an institution legally defined as the defender of the secular constitution, were detained in February on charges related to an alleged 2003 plot to overthrow Erdogan, suspected by opponents of seeking to strengthen the role of religion in society. Tensions have eased since a Feb. 26 meeting between Erdogan and General Ilker Basbug, the country’s military chief.

‘Risk Appetite’

Some investors are too bullish on the lira because political risks may increase as the government seeks approval of constitutional changes limiting the power of judges who’ve objected to Erdogan’s policies, including a move to ease curbs on the Islamic-style headscarf, said Inan Demir, chief economist at Finansbank AS in Istanbul.

The government doesn’t have a two-thirds majority in Parliament, meaning the amendments may be put to a referendum. Erdogan may bring elections forward if the main opposition Republican People’s Party seeks to block the referendum in court and judges concur, Demir said in an interview.

“For the lira to strengthen to 1.40 levels the central bank has to tighten a lot or the risk appetite should get very strong,” Demir, who estimates the lira will fall to 1.53 to the dollar by year-end, said in an April 21 interview. “We don’t have this as our base-case scenario.”

Citigroup Inc. estimates the lira will drop to 1.51 per dollar, “given the combination of low real interest rates, an historically very strong exchange rate in real terms, and rising external financing requirements,” it said in an April 19 report from analysts including Jeremy Hale, head of macro strategy.

Credit Ratings Raised

Fitch Ratings in December lifted Turkey’s debt rating two levels to BB+, one step below investment grade, citing the growing economy and strength of the banking industry. None of Turkey’s banks required a bailout during the financial crisis. Moody’s Investors Service raised Turkey to Ba2, two ranks below investment grade, in January, and Standard & Poor’s boosted its rating one step to the equivalent BB in February.

Rising confidence in Turkish assets meant the government was able to sell 10-year lira-denominated bonds in January, the longest-maturity fixed-rate debt in the country’s history. The Treasury sold 10-year inflation-linked bonds in liras for the first time last month.

Hyundai Motor Co., South Korea’s largest carmaker, is among foreign companies increasing their investments in Turkey. Hyundai plans to spend $75 million on its plant in northwestern Turkey and increase its workforce by 500 to 2,500 to make the i20 compact, the company’s press office said April 21.

Lira Turnaround

Rising prospects for the lira mark a turnaround for the once-beleaguered currency that was introduced by the Ottoman Sultanate in 1844 and devalued repeatedly over the past 100 years as Turkey struggled to align itself with Europe.

The lira depreciated in the 1970s and 1990s, when annual inflation reached more than 130 percent. A financial crisis in 2001 forced the government to stop pegging the currency to the dollar, and the lira’s value dropped to 1.65 million per dollar from 694,000 in eight months.

By 2004, the lira was the world’s least valuable currency. Children had to carry 1,500,000 liras to buy a bar of chocolate, and the government budget was 160,938,000,000,000,000 liras ($120 billion).

Erasing Zeroes

Turkey erased six zeroes from its bank notes in January 2005 as inflation slowed to single digits for the first time since the 1970s, the government completed an IMF loan accord, and European Union membership talks began. Inflation hasn’t exceeded 13 percent since.

Now a chocolate bar costs 1 lira and the government budget is 287 billion liras ($192 billion).

The lira is no longer a “banana republic currency” after the government tightened monetary policy, strengthened the banking system and made markets more transparent, said Hakan Kalkan, who helps manage about $700 million Autonomy Capital in London, including Turkish assets.

“From a currency that no one gave a glance, even at times of three-digit interest rates, there is a completely different picture now,” he said in an April 21 interview. “The lira is becoming a world currency.”

Bovespa, Real Rally on Industrial Output, China Manufacturing

(Bloomberg) -- The Bovespa stock index climbed to the highest level in 21 months and the real strengthened after Brazil’s industrial production grew more than estimated and manufacturing in China expanded at a faster pace in March.

Gerdau SA gained 3 percent, leading steelmakers higher, after industrial output expanded at the quickest rate in four months. Petroleo Brasileiro SA, Brazil’s state-controlled oil company, rose for a second day as crude prices climbed. Duratex SA increased 1.7 percent after Deutsche Bank AG recommended buying the maker of panels for the furniture industry.

The Bovespa index rose 1.1 percent to 71,156.15 at 1:23 p.m. New York time, climbing for a fifth day and erasing a drop of as much as 11 percent from a 19-month high on Jan. 6. Forty- two stocks gained on the index while 16 fell. The real strengthened 0.9 percent to 1.7660 per dollar.

“We’re basically seeing industrial activity rising in all countries, and not only rising but intensifying,” said Alvaro Bandeira, director of Rio de Janeiro-based Agora Corretora, Brazil’s second-biggest brokerage. “We’re seeing an acceleration of activity, which increases investors’ propensity for risk-taking a little bit more.”

The Bovespa has climbed 3.8 percent this year on signs the global economic recovery is gaining strength. The measure soared 83 percent in 2009, its best performance since 2003, as domestic demand, government stimulus plans and rising prices for Brazil’s commodity exports helped pull the economy out of recession faster than most countries. The real has dropped 1.2 percent this year after surging 33 percent in 2009, the best performance among 26 emerging-market currencies tracked by Bloomberg.

Real’s Rise

The rebound in economic activity and commodity prices may push the real back to last year’s high of 1.70 per dollar by July, said Ryan Gibbons, a partner at GPS Capital Markets, a Salt Lake City-based foreign exchange advisor to mid-size companies.

“If we see a normal operating environment with no major crisis, the currency will make a nice run again,” he said in a telephone interview.

Brazil’s industrial output increased 1.5 percent in February from January, beating the median estimate of a 1 percent advance by 30 analysts in a Bloomberg survey, and more than a revised 1.2 percent gain in January. Production rose 18.4 percent from a year earlier.

Gerdau, Latin America’s biggest steelmaker, rose 88 centavos to 29.78 reais. Usinas Siderurgicas de Minas Gerais SA, Brazil’s second-biggest maker of the metal, rose 3 percent to 62.72 reais, while third-biggest Cia. Siderurgica Nacional SA added 2.3 percent to 36.49 reais.

Manufacturing Rebound

Japan’s largest manufacturers became the least pessimistic about the economy since 2008 as a global rebound drove demand for exports. The Tankan index of sentiment rose to minus 14 in March from minus 25 in December, the fourth straight gain, the Bank of Japan said in Tokyo today.

Commodity Rally

Vale SA, which gets about two thirds of its sales from Asia, rose 0.6 percent to 49.86 reais. Petrobras climbed 1.1 percent to 35.76 reais. Crude oil surged to a 17-month high on signs that global economic growth is accelerating, bolstering optimism that fuel consumption will increase this year. The Bloomberg Base Metals 3-Month Price Commodity Index increased 0.8 percent.

Duratex added 26 centavos to 15.61 reais. Wood panel prices will likely increase on growing demand and “relatively tight” supply, Josh Milberg, an analyst at Deutsche Bank, wrote in a note. He raised the Sao Paulo-based company to “buy” from “hold.”

Index Changes

PDG Realty SA Empreendimentos e Participacoes led gains on the Bovespa index after exchange owner BM&FBovespa SA said the real estate developer may have its weighting in the measure increased.

Brasil Ecodiesel Industria e Comercio de Biocombustiveis e Oleos Vegetais SA and Agre Empreendimentos Imobiliarios SA, which BM&FBovespa SA said may be added to the index next month, helped lead gains on the IBrX index of the 97 most-traded stocks in Brazil, jumping more than 2 percent each.

The Bovespa trades for 13.8 times analysts’ 2010 earnings estimates, compared with 15.9 times for Mexico’s Bolsa and 17.5 times for Chile’s Ipsa. The IGBC Index in Colombia is valued at 21.5 times profit estimates, Bloomberg data show. The Bovespa index trades for 17.8 times the reported profits of its companies after fetching 25.5 times in November, the most in almost six years, according to weekly data compiled by Bloomberg.