Bloomberg News

Emerging-Market Stocks Fall to Three-Week Low on Greece Concern

September 12, 2011

Sept. 12 (Bloomberg) -- Emerging-market stocks declined, sending the benchmark index to a three-week low, and currencies weakened amid speculation Greece is moving closer to default.

The MSCI Emerging Markets Index fell 2.3 percent to 969.97 at 4:30 p.m. in New York. The U.S.-listed iShares MSCI Emerging Markets Index exchange-traded fund slipped 0.2 percent, paring an early drop of 2.6 percent after a report that Italy was in talks with China about possible investments. India’s rupee, Brazil’s real, South Korea’s won and the South African rand depreciated at least 1.4 percent against the dollar.

Financial companies led declines in the MSCI index after three coalition officials said on Sept. 9 that members of Chancellor Angela Merkel’s government are debating how to shore up German banks should Greece fail to meet the budget-cutting terms of its aid package. Stocks rallied from their lows of the day as the Financial Times said that Italy’s government was in talks with China Investment Corp. about “significant” purchases of Italian bonds and investments in strategic companies.

“Risk assets have sold off sharply at the start of the trading week, with renewed concerns about the prospects of a Greek default the primary driver of the price action,” emerging-market analysts at RBC Capital Markets including Robert Beange in London wrote in an e-mailed report. “European Union support for further assistance, particularly in Germany, is clearly wavering, increasing pessimism that a disruptive resolution to the crisis cannot be avoided.”

Falling Valuations

The MSCI index has retreated almost 20 percent from this year’s high on May 2 as Europe’s debt crisis and a slowdown in U.S. hiring threaten to curb the global economic expansion. The 21-country index is valued at 9.1 times analysts’ 12-month earnings estimates, down from 11.6 times at the beginning of the year, according to data compiled by Bloomberg.

The CBOE Emerging Markets ETF Volatility Index, a gauge of the cost of using options as insurance against declines in the iShares MSCI Emerging Markets Index exchange-traded fund, climbed 1.3 percent to 50.70, the highest level since Aug. 10.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries was unchanged at 3.84 percentage points, according to JPMorgan Chase & Co.’s EMBI Global Index.

Italian bond yields surged at an auction today as Greek Prime Minister George Papandreou failed to reassure investors that his country can avert default. Europe’s recovery is “fragile” and sovereign-debt levels will keep rising through 2012, the European Commission said.

Hungary Mortgages

Russia’s Micex Index lost 1.7 percent, while the Czech PX Index retreated 3.7 percent and Poland’s WIG20 Index dropped 3 percent. Hungary’s BUX Index of shares slid 2.9 percent, with Mol Nyrt., the nation’s biggest oil company, lost 6.3 percent.

The forint weakened for a third day against the euro, losing 0.7 percent. Hungarian banks were suspended from trading as the government prepared to unveil a plan which may force lenders to swallow losses on foreign-currency mortgage loans.

Most stocks in Brazil’s Bovespa index rose after the real’s decline boosted the outlook for exporters including Fibria Celulose SA and Klabin SA. The Bovespa closed down 0.2 percent, after earlier falling as much as 2.6 percent.

The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong sank to its lowest close since May 2009 even after data showed Chinese imports surged to a record and lending rebounded. Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, fell 5.3 percent.

India’s BSE India Sensitive Index fell 2.2 percent after the nation’s industrial production grew at the slowest pace in almost two years. Output at factories, utilities and mines rose 3.3 percent in July from a year ago, the Central Statistics Office said in a statement today. The median of 25 estimates in a Bloomberg News survey was for a 6.2 percent increase.

Exchanges in South Korea, Taiwan and China were closed for holidays.

--With assistance from Weiyi Lim in Singapore. Editors: Brendan Walsh, Marie-France Han

To contact the reporters on this story: Michael Patterson in London at mpatterson10@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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