Bloomberg News

Emerging Stocks Drop for First Time in Six Days on China Concern

July 05, 2011

July 5 (Bloomberg) -- Emerging-market stocks fell for the first time in six days after Moody’s Investors Service said the credit outlook for China’s banking industry may decline and U.S. factory orders didn’t rise as much as economists’ forecast.

The MSCI Emerging Markets Index declined 0.3 percent to 1,166.2 as of 5 p.m. in New York, halting a five-day advance, the longest winning streak in three months. Brazil’s Bovespa Index dropped 1.3 percent on concern interest rates are set to rise again in China, the country’s largest trading partner. Turkey’s ISE National 100 Index slid 0.5 percent, and the Shanghai Composite Index rose 0.1 percent.

Chinese banks’ loans to local governments are about 3.5 trillion yuan ($541 billion) more than estimated, Moody’s said today. Orders placed with U.S. factories increased at a slower pace than economists forecast, according to the Commerce Department.

“China remains at the forefront of investors’ minds given its increasingly large contribution to global growth,” said Tim Schroeders, who helps manage $1 billion in global equities at Pengana Capital Ltd. in Melbourne. “Any slowdown in the rate of growth has heightened flow-on effects to growth expectations, not only in China but globally.”

The MSCI Emerging Markets Index has gained 1.3 percent this year, compared with a 5 percent gain in the MSCI World Index of developed-country stocks.

Chinese Banks

China may experience lower economic growth in the second half, Venkatraman Anantha-Nageswaran, the Singapore-based global chief investment officer at Bank Julius Baer & Co., said in a Bloomberg Television interview today. A transition to a consumption-led economy is taking “a lot longer” than expected, while inflation will remain high, he said.

Additional Chinese bank liabilities, coming on top of the national audit office’s findings last week of 10.7 trillion yuan in local government debt, may stoke concerns that banks will be unable to absorb losses on defaults should property prices drop. Non-performing loans could reach as much as 12 percent of total credit, Moody’s estimated. China Construction Bank Corp. lost 1 percent.

Brazil’s Vale SA declined 1.5 percent as concern mounted regarding China, the company’s top export market. Separately, Jinchuan Group Co. offered $1.3 billion for Metorex Ltd., topping a bid from the world’s largest iron ore producer.

Chile’s Lan Airlines SA and Brazil’s Tam SA, Latin America’s largest carriers by sales, gained 2.2 percent and 4.6 percent respectively on speculation Chile’s antitrust tribunal will approve the Santiago-based company’s $4.1 billion takeover of its Brazilian rival.

Russia’s Micex index climbed for a sixth day, the longest winning streak since December. Oil rose 2.1 percent in New York.

The Turkish lira weakened 0.7 percent, the most since June 23, after the central bank said the need for monetary tightening is lessening because growth will slow and the outlook for inflation is “positive.”

Vietnam Rate Cut

Vietnam’s VN Index gained 1.3 percent after the central bank cut borrowing costs. The central bank cut the repurchase rate yesterday by one percentage point to 14 percent, according to an e-mailed statement.

South Korea’s Kospi Index gained 0.8 percent. The Bombay Stock Exchange Sensitive Index declined 0.4 percent

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose seven basis points, or 0.07 percentage point, to 291, according to JPMorgan’s EMBI Global Index.

The Markit iTraxx SovX CEEMEA Index of eastern European, Middle East and Africa credit-default swaps rose two basis points to 196.

--With assistance from Tal Barak Harif and Boris Korby in New York. Editors: Marie-France Han

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net; Jason Webb in London at jwebb25@bloomberg.net.

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


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