Bloomberg News

Emerging Stocks Fall on Greece Debt, Credit Tightening

June 15, 2011

June 15 (Bloomberg) -- Emerging-market stocks fell and currencies weakened as European officials failed to agree on a rescue plan for Greece and concern deepened that government efforts to curb credit growth will erode bank earnings.

The MSCI Emerging Markets Index declined 0.6 percent to 1,127.80 at 4:30 p.m. in New York, its fifth retreat in six days. China’s Shanghai Composite Index lost 0.9 percent and the ISE National 100 Index in Turkey fell 2 percent. Brazil’s Bovespa index dropped to the lowest since July 5 on concern a slowing U.S. economy will damp demand for the country’s commodities. The Polish Zloty tumbled 2.3 percent against the dollar, the biggest fall among emerging-market currencies.

Energy companies led declines in the MSCI index after oil tumbled below $95 for the first time since February. Hungary’s BUX Index lost 1.4 percent, while shares in Poland fell after an emergency session of European finance chiefs in Brussels yesterday failed to break a deadlock on how to enroll investors in a second Greek bailout without triggering a default. China announced an increase in the reserve requirement ratio for banks yesterday and Turkey said it may boost lenders’ deposit- insurance premiums, pushing down financial stocks.

In China, policy makers are “still tightening the fiscal and monetary measures to try to lower the liquidity in the markets,” Ronald Wan, managing director at China Merchants Securities Co. in Hong Kong, said in an interview on Bloomberg Television. “I don’t think the government will loosen before the end of the third quarter.”

2011 Decline

Mexico’s peso dropped 1.1 percent to the weakest level in 10 weeks against the dollar on concern over Greece’s debt crisis. Turkey’s lira slid 1.4 percent and South Africa’s rand depreciated 1.2 percent.

U.S. reports showed manufacturing in the New York region unexpectedly shrank in June to the lowest since November, while inflation in May topped the median forecast of economists surveyed by Bloomberg. The MSCI emerging-market gauge has dropped 2 percent this year, compared with a 0.3 percent gain for the MSCI World Index of advanced-country shares.

“Money has flooded into these areas, thereby making stocks in emerging markets relatively less attractive than those of developed markets,” said David Herro, chief investment officer of international equities at Harris Associates, in an interview with Bloomberg Television today. “The growth story isn’t over, but the stock story has taken a pause because of valuation.”

Oil Companies, Banks

The Bovespa index was dragged down by declines in mining and oil companies. Vale SA fell 0.6 percent. Petroleo Brasileiro SA slid 1.3 percent and OGX Petroleo & Gas Participacoes lost 2.8 percent. Chile’s benchmark IPSA index slid the most in two months and Colombia’s IGBC index fell to a one-month low.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries surged 12 basis points, or 0.12 percentage point, to 315 today, according to JPMorgan Chase & Co.’s EMBI Global Index.

Industrial Bank Co. fell 2.1 percent, pacing declines among Chinese lenders. The central bank announced a half-percentage point increase in the reserve ratio after the market closed yesterday, adding to the nation’s 11 reserve-requirement increases and four interest-rate jumps since early 2010 to cool inflation. The latest move came after data showing the inflation rate climbed to 5.5 percent in May, the fastest pace since July 2008.

Akbank TAS, the Turkish bank part-owned by Citigroup Inc., retreated 2.5 percent. The country is considering a boost in bank deposit insurance premiums, Savings Deposit and Insurance Fund Chairman Sakir Ercan Gul told Bloomberg HT television, without saying by how much. The move would hurt bank profits, Oyak Securities said in an e-mailed note to clients.

The Bombay Stock Exchange Sensitive Index lost 1 percent before an interest-rate decision tomorrow. The central bank will raise borrowing costs for the 10th time since March 2010 to cool inflation, according to economists surveyed by Bloomberg.

--With assistance from Belinda Cao in New York, Rishaad Salamat in Hong Kong, Cecilia Yap in Manila and Benjamin Harvey in Istanbul. Editors: Marie-France Han, Brendan Walsh

To contact the reporters on this story: Michael Patterson in London at mpatterson10@bloomberg.net; Ian C. Sayson in Manila at isayson@bloomberg.net

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


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