Bloomberg News

Emerging Stocks Fall to Two-Week Low on Rates, Economy Concerns

June 09, 2011

June 9 (Bloomberg) -- Emerging-market stocks fell, sending the benchmark index to a two-week low, on growing concern that central banks will increase interest rates even as the global economic expansion slows.

The MSCI Emerging Markets Index dropped 0.3 percent to 1,142.24 at 4:30 p.m. New York time, the lowest since May 26. China’s Shanghai Composite Index lost 1.7 percent, while South Korea’s Kospi declined 0.6 percent. Poland’s WIG20 Index dropped 0.4 percent and the zloty fell 0.3 percent versus the dollar. Brazil’s Bovespa stock index gained the most in a week on lower- than-forecast inflation and rising commodities prices.

The Shanghai Composite closed at the lowest level since January on speculation the central bank will keep tightening monetary policy. Central banks in Brazil and Poland lifted interest rates yesterday, and the Bank of Korea will weigh a rate increase tomorrow. European Central Bank President Jean- Claude Trichet signaled today that policy makers will raise borrowing costs next month.

“Central banks face a dilemma in striking a balance between growth and inflation,” said Lye Thim Loong, who helps manage about $770 million at Avenue Invest Bhd. in Kuala Lumpur. “The good times have passed for companies, business costs remain high on energy prices, consumers are feeling the heat and demand will taper off, translating to lower earnings.”

The MSCI index has lost 0.8 percent this year as investors speculated reduced economic stimulus efforts by governments worldwide will threaten earnings growth. The 21-country gauge is valued at 10.4 times analysts’ estimates for profits during the next 12 months, down from 11.6 at the start of the year, according to data compiled by Bloomberg.

Yield Spread

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell nine basis points, or 0.09 percentage point, to 307 today, according to JPMorgan Chase & Co.’s EMBI Global Index.

Consumer prices in Brazil declined 0.1 percent this month through June 8, the preview of the IGP-M inflation report from the Getulio Vargas Foundation in Rio de Janeiro showed. That compared with the median forecast of a 0.24 percent increase in a Bloomberg survey of 14 economists.

The Bovespa advanced 0.7 percent, with PDG Realty SA Empreendimentos & Participacoes leading gains among homebuilders. BRF-Brasil Foods SA fell as much as 7 percent after Brazil’s antitrust authority said yesterday the $3.8 billion merger of Perdigao SA and Sadia SA that created the world’s largest poultry exporter should be blocked. Banco do Brasil SA and Itau Unibanco Holding SA both declined 0.8 percent after the interest-rate increase.

Poly Real Estate

Poly Real Estate Group Co., China’s second-largest developer by market value, dropped 2.5 percent. China Vanke Co., the biggest, slid 2.5 percent after the central bank denied a newspaper report saying home-purchase limits would be relaxed.

PZU SA, Poland’s biggest insurer, sank 3.8 percent to 371.5 zloty as the government offered a stake of as much as 10 percent. Poland, seeking to raise 15 billion zloty ($5.5 billion) from state asset sales in 2011, is offering the PZU stake to financial investors today, according to terms of the deal obtained by Bloomberg News yesterday. The government is said to price PZU’s shares at 367 zloty each, two people familiar with the transaction said today.

Russia’s Micex Index gained 1.7 percent, while India’s Bombay Stock Exchange Sensitive Index slipped less than 0.1 percent.

--With assistance from Belinda Cao in New York, Anuchit Nguyen and Yumi Teso in Bangkok and Saeromi Shin in Seoul. Editors: Richard Richtmyer, Brendan Walsh

To contact the reporters on this story: Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net; Michael Patterson in London at mpatterson10@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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