Bloomberg News

Emerging Stocks Fall to Three-Month Low on Europe, Rate Concern

June 16, 2011

June 16 (Bloomberg) -- Emerging-market stocks fell to a three-month low as concern deepened that Europe’s debt crisis and rising interest rates in developing nations will curb global economic growth.

The MSCI Emerging Markets Index dropped 1.8 percent to 1,107.43 at 5:30 p.m. in New York, the lowest since March 18. China’s Shanghai Composite Index sank 1.5 percent, while India’s Bombay Stock Exchange Sensitive Index lost 0.8 percent and South Korea’s Kospi dropped 1.9 percent. Brazil’s Bovespa index lost 1.2 percent and Russia’s Micex fell 0.5 percent.

Equities in Poland, the Czech Republic and Hungary sank, while east European currencies weakened as violence erupted in Greece over budget cuts. The Shanghai composite tumbled to the lowest level since September after the Economic Information Daily said in a front-page editorial that an interest-rate increase in China isn’t “far away.” The Sensex extended this year’s drop to 12 percent after India’s central bank raised borrowing costs for the 10th time since the start of 2010.

“Governments are walking a fine line between growth and social obligations,” said Lye Thim Loong, who helps manage about $770 million at Avenue Invest Bhd. in Kuala Lumpur. “Cheap money for funding businesses will eventually dry up.”

The MSCI gauge of emerging markets has fallen 3.8 percent this year, compared with a 0.5 percent slide in the MSCI World Index of developed-nation stocks. Shares in the MSCI emerging index are valued at 10.1 times analysts’ 12-month earnings estimates, the lowest level since March 2009, according to data compiled by Bloomberg.

Industrials and Financials

Industrial and financial stocks were among the biggest decliners on the MSCI emerging gauge today. Hyundai Heavy Industries Co., the world’s biggest shipbuilder, slumped 4.3 percent. China Construction Bank Corp., the world’s second- largest lender by market value, plunged 4.8 percent in Hong Kong.

The Czech PX index retreated 1 percent and Hungary’s benchmark BUX index of shares dropped 0.7 percent. Poland’s zloty weakened 0.9 percent against the euro after the International Monetary Fund said yesterday that Hungary’s government may breach the European Union’s budget-deficit limit next year.

Banco do Brasil SA, Latin America’s biggest bank by assets, lost 2 percent, the most in a month, as traders raised bets for higher borrowing costs and concern mounted that proposed international regulations may subject banks to capital surcharges if they grow any bigger. Miner Vale SA followed metal prices lower and oil company OGX Petroleo e Gas Participacoes SA fell for the fifth day in Brazil.

Yield Spread

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose five basis points, or 0.05 percentage point, to 321, according to JPMorgan Chase & Co.’s EMBI Global Index.

Greek Prime Minister George Papandreou will reshuffle his Cabinet today and seek a confidence vote, battling to control a shrinking majority and pass austerity measures demanded by international lenders. Police used tear gas to break up protests in central Athens last night.

Irish Finance Minister Michael Noonan said yesterday senior bondholders should share in the losses of Anglo Irish Bank Corp. and Irish Nationwide Building Society, reversing a policy of protecting owners of senior securities.

--With assistance from Belinda Cao, Tal Barak Harif in New York, Rajhkumar KShaaw in Mumbai 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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