Emerging Stocks Advance to Three-Week High Led by Russia

Emerging-market stocks rose to a three-week high as energy producers lifted Russian shares and Indian lenders surged on central bank plans to bolster the industry. Poland's WIG20 Index fell the most in the world.

The MSCI Emerging Markets Index added 1.1 percent to 947.67, the highest since Aug. 16. HDFC Bank Ltd. (HDFCB), India's largest lender by market value, surged 8.1 percent. Russian oil producer OAO Rosneft (ROSN) led the Micex Index to the biggest gain in a year. The WIG20 Index tumbled 4.6 percent, the most among 94 gauges tracked by Bloomberg, as Poland unveiled changes to its pension system. The Brazilian real advanced to a three-week high after policy makers sold foreign-exchange swap contracts.

Energy shares led gains among the 10 industries in the measure of developing nations as crude oil jumped. Reserve Bank of India Governor Raghuram Rajan announced a plan yesterday to provide concessional swaps for banks' foreign-currency deposits a move that will boost the authority's reserves by $10 billion, according to Bank of America Merrill Lynch. India's lower house of parliament passed a bill yesterday allowing international holdings in pension funds in a bid to shore up the rupee.

"There's optimism India's new central bank will help get the house in order," said Jonathan Ravelas, the chief market strategist at Manila-based BDO Unibank Inc. "These gains in emerging-market assets indicate some recovery in investor confidence. It's probably a temporary respite until the start of tapering in U.S. stimulus."

Investors also watched U.S. economic reports for clues on how soon the Federal Reserve will start tapering its bond-buying program. Fewer Americans than forecast filed applications for unemployment benefits last week, while growth at U.S. service industries unexpectedly accelerated in August. The employment report for August is due tomorrow.

Economic Growth

Emerging-market economic growth recovered in August from the first contraction since 2009 as business conditions improved in China and Russia, HSBC Holdings Plc said, citing a survey of purchasing managers.

The iShares MSCI Emerging Markets Index exchange-traded fund rose 1.2 percent to $39.40. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, slid 3 percent to 25.89.

Brazil's Ibovespa rose 1.2 percent, reversing a decline of as much as 0.9 percent, as Petroleo Brasileiro SA (PETR3), Brazil's state-run crude producer, surged. The real added 1.5 percent.

Russia, Poland

The Micex Index gained 3.4 percent, the most since September 2012 and the best-performance among 17 markets in eastern Europe tracked by Bloomberg. OAO Rosneft, Russia's biggest oil producer, added 4.3 percent. OAO Gazprom (OGZD), the nation's largest company, jumped 6 percent.

The WIG20 index slid 4.6 percent. Bank Handlowy SA dropped 8.4 percent, while Globe Trade Centre SA, a property developer, lost 8.1 percent. Poland will take over and cancel government bonds held by its privately managed pension funds, stopping short of fully "nationalizing" the system as it seeks to curb public debt, Prime Minister Donald Tusk said yesterday.

The lira touched a record low against the dollar as measures taken by the central bank failed to allay concern Turkey's economy will be hurt if its neighbor Syria is attacked in a U.S.-led military strike.

Indian stocks surged the most among major Asian markets, as HDFC led by the biggest rally in lenders since May 2009. The rupee jumped 1.5 percent after the new central bank governor took steps to boost dollar supply.

Chinese Shares

China's stocks fell for the first time in five days, led by material producers and steelmakers, after valuations for the benchmark index climbed to the highest level since June. Aluminum Corp. of China Ltd. and Jiangxi Copper Co. (358) declined at least 1.7 percent, sending a gauge of material producers to the biggest loss among industry groups.

The won dropped, reversing an earlier gain, on speculation authorities intervened to weaken the currency after it reached the strongest level in almost four months.

The premium investors demand to own emerging-market debt over U.S. Treasuries fell 10 basis points, or 0.1 percentage point, to 344 basis points, according to JPMorgan Chase & Co.

Surprisingly Enough, Prepaid Phone Plans Have Not Hurt High-End Device Makers

According to the NPD group, in the first quarter of 2013, y-o-y smartphone sales increased by 42 percent, with 36% of the volume increase coming from prepaid smartphone sales. In fact, y-o-y prepaid smartphone unit sales doubled in Q1 and accounted for 32 percent of total smartphone unit sales, which is an 11 point increase y-o-y and a 10% point sequential increase from the record-high share of 22% reached in Q4 2012.

The prepaid phone market has one simple purpose: To provide wireless service to people who are unable to secure a regular contract account or people who don't want one.

Prepaid plans enable people to pay for their device in cash and then choose any kind of plan they want. And because users pay up-front for the device, they tend to buy a lower priced device. People who simply want to talk and don't ask much more from their smartphone, are apt to choose this route.

In Europe this is extended to prepaid sim cards as well. In other words, you buy a device and then choose a carrier by buying a prepaid sim card. In this particular case you don't have any monthly bills at all. If you don't make many calls -- but mostly receive calls -- you can go by with a 10 euro prepaid sim card for months. Here is an example of a sim card for Blackberry (BBRY) phones.

Obviously, as more and more people go on a prepaid plan, the percentage of people that will fork out $700 for a high end phone will be less, right?

That might be true for some consumers, however it also works the other way around. In other words, because people have a lower fixed monthly bill, they can afford to pay a little extra for a better device up-front.

And indeed, as far as the U.S. market is concerned, this is exactly what has been happening. NPD tells us that "both LG and Apple (AAPL) made significant inroads into the segment since Q1 2012, with LG's! unit share doubling and Apple's unit share increasing fourfold".

In fact NPD tells us that the Apple iPhone 4S was among the two top-selling phones in 2012. Consumers looking at prepaid phones look for value, and that does not necessarily mean cheap or obsolete phones, says NPD group.

So in the prepaid market, surprisingly enough, Apple has actually scored points, despite the fact that it's a high-end high priced device maker. LG however is probably the biggest winner, because NPD tells us it doubled its market share, while Samsung (SSNLF.PK) has remained in the number one position having retained its market share. The biggest surprise of all however is that Nokia (NOK) is not on this list.

(click to enlarge)

The bottom line is that the prepaid phone market is not necessarily bad for smartphone makers. Surprisingly enough, people are willing to pay more money up front for a high-end device, in exchange for a lower phone bill.

Source: Surprisingly Enough, Prepaid Phone Plans Have Not Hurt High-End Device Makers

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)