Emerging giants offer hope global economy turning

The manufacturing sectors in China and India grew for the first time in months in April, surveys showed yesterday, offering evidence the global economy may be through the worst of its sharpest slump in six decades.

The latest signs of "green shoots" from the world's emerging giants followed US data on Friday that showed a rise in consumer confidence and suggested manufacturing conditions were gradually improving, helping push Asian stocks to seven-month highs yesterday.

Markets also waited for the results of the US bank "stress tests", with the Financial Times reporting Bank of America was planning to raise more than $10 billion in fresh capital even as it and Citigroup attempt to convince the government they do not need to bolster their balance sheets.

Hong Kong-based brokerage CLSA said its China Purchasing Managers' Index rose to 50.1 in April from 44.8 in March. It was the first time since July 2008 the seasonally-adjusted index climbed above the 50-point watershed mark that separates expansion from contraction.

"China's government has been extremely successful in stimulating investment and, combined with a sharp improvement in export orders, this has pushed the PMI back into positive territory in April," said Eric Fishwick, head of economic research at CLSA.

The private sector report reinforced the positive signals from a similar survey produced by the National Bureau of Statistics.

A series of global PMI surveys - which record changes in items such as output, orders, employment, inventories and prices - have suggested or are forecast to show signs the world economy may be through the worst of the downturn.

In India, the ABN AMRO Bank purchasing managers' index rose to 53.3 in April from March's 49.5, its highest in seven months. And in Russia, the third of the so-called BRIC quartet of big emerging economies that also includes Brazil, the VTB Capital Purchasing Managers' Index yesterday showed the manufacturing sector contracted at its slowest pace in six months in April.

With Japan closed for a holiday, shares elsewhere in Asia-Pacific rose nearly five per cent on Monday, pushing the regional index to its highest level since mid-October and taking its two-month rally to 45 per cent from early March lows.

Financial and technology shares led the gains, as evidence mounted that global trade is starting to pick up and investors took the view that the US banking system has already suffered the worst of the crisis and is getting healthier.

"Bank earnings are coming out fine and investors increasingly believe the result of the US banking sector's stress test will be tolerable," said Kim Hak-kyun, an analyst at Korea Investment & Securities in Seoul.

The global recession was triggered by a crisis in the financial sector and the US government has been conducting unprecedented "stress tests" on 19 banks to determine if they have enough capital to withstand further shocks.

Citing people familiar with the situation, the Financial Times said Bank of America, Citigroup and at least two other lenders would on Monday attempt to convince the US Treasury and Federal Reserve that the findings were too pessimistic.

Bank of America, which has already received $45 billion in government bailout funds, was found to need well in excess of $10 billion, the FT said. A government official said the results of the stress tests would be made public on Thursday.

Warren Buffett, considered by many to be the world's best investor, criticised the conduct of the tests on Sunday, telling a news conference they failed to properly assess the industry's health because they ignored differences in business models.