Bloomberg News

Emerging Stocks Retreat for Third Day on Europe Debt Concern

September 06, 2011

Sept. 6 (Bloomberg) -- Emerging-market stocks fell a third day as concern that European leaders may fail to contain the region’s debt crisis hurt the outlook for the global economy.

The MSCI Emerging Markets Index slid 0.2 percent to 988.05 as of 5:33 p.m. New York time, taking its three-day decline to 4.8 percent. South Africa’s benchmark gauge retreated 1.2 percent. South Korea’s Kospi Index slumped 1.1 percent while Taiwan’s Taiex index sank 2.4 percent. Benchmark indexes in the Czech Republic and Hungary climbed after Switzerland said it would set a ceiling for the euro exchange rate with the franc.

“The main focus remains on Europe after yesterday’s sharp moves in financial shares and peripheral spreads,” analysts at RBC Capital Markets, including Robert Beange in London, wrote in an e-mailed report. “Headline risk today will be acute, with the Italian government debating an austerity package, German, Dutch and Finnish finance ministers discussing Greek collateral and a Parliamentary session on Greek aid.”

European stocks completed their biggest two-day drop since March 2009 yesterday, with the Stoxx Europe 600 Index losing 4.1 percent. Italian Prime Minister Silvio Berlusconi called a Cabinet meeting today to authorize a confidence vote in Parliament on an amended 45.5 billion-euro ($63.7 billion) austerity plan that promoted a general strike.

The MSCI emerging-market index has dropped 14 percent this year, more than the 11 percent decline by the MSCI World Index of developed stocks. Companies on the emerging-market gauge are trading at 9.1 times estimated 12-month earnings, compared with 10.2 times for stocks in developed markets.

Easing Burden

The BUX Index added 0.9 percent in Budapest after the Swiss National Bank said that it would set a minimum exchange rate of 1.2 francs per euro. The forint surged 9 percent against the Swiss currency, easing concern Hungarian homeowners will struggle to pay franc-denominated mortgages. The Polish zloty jumped 8.4 percent against the franc.

“The news has been read as positive for Hungary and Poland in particular as it will help to ease some of the burden of debt repayments of franc-indebted households,” RBC wrote.

Turkey’s ISE National 100 Index rose by 1.8 percent after Morgan Stanley raised the country’s stocks to “overweight” from “equal weight” in its regional portfolio, saying recent losses may be overdone.

Service industries in the U.S. unexpectedly expanded at a faster pace in August, easing concern the biggest part of the economy was slumping. The Institute for Supply Management’s index of non-manufacturing businesses increased to 53.3 last month from 52.7 in July. Economists forecast the gauge would drop to 51, according to the median estimate in a Bloomberg News survey. A reading above 50 signals expansion.

Bovespa Rises

Brazil’s Bovespa index climbed for the first time in three days, surging 2.9 percent, after the U.S. service industries rose more than forecast and the nation’s August inflation accelerated at a pace that was in line with economists’ expectations.

Lojas Renner SA, the country’s biggest publicly traded clothing retailer, jumped 5.8 percent, after the company was raised to “outperform” from “market perform” at Bradesco Corretora. Brookfield Incorporacoes SA, Brazil’s fourth-largest homebuilder by revenue, leaped 6.4 percent, the most in one week.

The Philippine Stock Exchange Index lost 1.8 percent.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose three basis points, or 0.03 percentage point, to 377, according to JPMorgan Chase & Co.’s EMBI Global Index.

The Markit iTraxx SovX CEEMEA Index of eastern European, Middle East and Africa credit-default swaps rose six points to 273.

--With assistance from Belinda Cao and Tal Barak Harif in New York. Editors: Marie-France Han, Glenn J. Kalinoski

To contact the reporters on this story: Shikhar Balwani in Mumbai at sbalwani@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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