Bloomberg News

Emerging Stocks Fall Amid U.S. Rating Concern, Doubtful Stimulus

July 14, 2011

July 14 (Bloomberg) -- Most emerging-market stocks fell after U.S. Federal Reserve Chairman Ben S. Bernanke said he won’t immediately act to stimulate the largest economy in the world.

More than 450 stocks in the MSCI Emerging Markets Index retreated while 311 advanced as of 4:30 p.m. in New York. The 21-country gauge fell 0.2 percent to 1,135.42. Brazil’s Bovespa index fell for the seventh time in eight days on speculation the global recovery may falter and the country will raise interest rates.

Bernanke’s remarks damped investor speculation that the Fed may launch a third round of quantitative easing, nicknamed “QE3” by investors, and snuffed out an early rally in stocks.

Moody’s Investors Service said yesterday it may cut the U.S. government’s Aaa rating after negotiations to increase the debt limit stalled in Congress. Italy sold five-year bonds at the highest yield in three years today, a sign investors are concerned the sovereign-debt crisis in Europe may spread to larger economies.

“U.S. borrowing costs could go up from a credit-rating downgrade, slowing corporate expansion and consumer spending,” said Mike Raz, who helps manage about $1.5 billion at Manila- based Rizal Commercial Banking Corp. “Weak U.S. demand will soften the recovery and hurt exporters in emerging markets.”

Falling Valuations

The MSCI emerging-market index has retreated 1.4 percent this year through yesterday, led by losses by industrial exporters such as Cia. Siderurgica Nacional SA, Brazil’s third- largest steelmaker, and technology companies, including Taiwan’s Hon Hai Precision Industry Co. and India’s Infosys Ltd., that sell products to customers in developed countries.

Cemex SAB, the largest cement maker in the Americas, declined 1.5 percent following Bernanke’s comments. The United States accounted for 18 percent of Cemex’s sales in 2010.

The MSCI index is valued at 10.9 times analysts’ 12-month profit estimates, down from 11.6 times at the beginning of the year, data compiled by Bloomberg show.

Technology companies led today’s retreat, with Hon Hai, the world’s largest contract maker of electronics, falling 1.5 percent and Infosys, India’s second-largest software producer, retreating 1.3 percent.

Rossi Residencial SA, Brazil’s sixth-biggest homebuilder by revenue, fell 5 percent, the most on the Bovespa index, as traders boosted bets for higher Brazilian borrowing costs.\

Indian Inflation

India’s Bombay Stock Exchange Sensitive Index rose 0.1 percent after the government said the inflation rate was 9.44 percent in June. The figure was lower than economists estimated and boosted investor confidence after bomb blasts last night killed at least 17 people in India’s financial hub. The Shanghai Composite Index advanced 0.5 percent to the highest level in a week, while Russia’s Micex Index slipped less than one percent.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries declined nine basis points, or 0.09 percentage point, to 3.07 percentage points, according to JPMorgan Chase & Co.’s EMBI Global Index. The Markit iTraxx SOVX CEEMEA Index of credit-default swaps for emerging Europe, the Middle East and Africa rose 0.95 basis point to 209.95, according to data provider CMA in London.

At least 150 gas stations in Gauteng, South Africa’s most populous province, ran out of fuel today as a strike by unionized workers entered its fourth day, the Fuel Retailers Association said. Steel and engineering workers downed tools 11 days ago, sparking concern loss of output will stall the nation’s economic recovery.

--With assistance from Leon Lazaroff in New York. Editor: Marie- France Han

To contact the reporter on this story: 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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