Bloomberg News

Emerging Stocks Retreat on Concern Over Europe’s Debt Crisis

September 28, 2011

Sept. 28 (Bloomberg) -- Emerging-market stocks fell, following the benchmark index’s biggest gain in more than two years yesterday, as concern grew that European leaders are divided over how to handle Greece’s debt crisis.

The MSCI Emerging Markets Index declined 0.3 percent to 891.05 at 4:30 p.m. in New York, erasing earlier gains. Brazil’s Bovespa Index fell 1.2 percent while Argentina’s Merval Index dropped 1.6 percent. The benchmark in Russia slipped 0.2 percent and that for South Africa slid 1.3 percent. Benchmark stock indexes in China, India and Korea also retreated.

The European Commission is resisting a push to impose bigger writedowns on banks’ holdings of Greek debt than those agreed on at a July 21 summit, a European official said on condition of anonymity because the deliberations are private. Chancellor Angela Merkel said today she’s waiting for a report on Greece’s budget progress from European inspectors before deciding if revisions are needed to the July agreement.

“There’s still a lot of focus on what’s going on with Europe. A lot of conflicting news stories,” said Greg Lesko, who helps oversee $800 million at Deltec Asset Management in New York. “The market’s going to be volatile until we know exactly what and when they are going to do something.”

Experts from the European Commission, European Central Bank and International Monetary Fund will return to Athens tomorrow to review progress toward receiving further financial aid. Merkel is seeking to muster support ahead of a vote in the German parliament tomorrow on whether to change the European Financial Stability Facility.

Earlier Gains

The MSCI gauge rose earlier after a U.S. Department report showed orders for U.S. capital goods climbed 1.1 percent in August, the most in three months. The growth exceeded the 0.4 percent median estimate by economists surveyed by Bloomberg.

“There’s been more talk about a U.S. recession than actual data to support it -- slow growth in the U.S. is still happening,” Lesko said.

U.S. President Barack Obama said today Europe’s debt crisis continues to be a drag on the U.S. economy and the response of governments there hasn’t been as robust as needed.

Tam SA, Brazil’s biggest airline by passengers carried, sank 5.2 percent, the most among companies in the Bovespa index, after Chile’s Lan Airlines SA said the Chilean antitrust court overestimated the income generated by fees charged by the airline when it evaluated the planned takeover of Tam.

Cemex SAB, the larget cement maker in Americas, dropped 5.4 percent in Mexico City amid investors’ concern about its ability to repay $17.8 billion in debt.

Currencies, Yield Gap

The Brazilian real weakened 1.9 percent versus the dollar, the worst performance among 25 emerging-market currencies tracked by Bloomberg. Mexico’s peso depreciated 1.4 percent to 13.5563 per dollar. The Polish zloty and Hungarian forint both fell 1.5 percent against the greenback.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries climbed two basis points, or 0.02 percentage point, to 447, according to JPMorgan Chase & Co.’s EMBI Global Index.

Italian and Spanish financial market regulators extended temporary bans on short selling of financial shares that were introduced last month in a bid to stem market volatility, according to an e-mailed statement by the European Securities and Markets Authority. Spain’s ban will remain “until the market conditions allow it” to be lifted while Italy’s limit, and another enacted by France in August, will both last until Nov. 11.

The index of Turkish banks surged 2.1 percent as investors bet policy makers will begin reversing measures that restrained lending and limited profits. Financial companies have a 54 percent weighting in the ISE National 100 Index.

Gazprom, Rosneft

OAO Gazprom, Russia’s gas export monopoly, retreated 1.2 percent, and OAO Rosneft, the nation’s biggest oil producer, declined 1.8 percent as crude futures fell.

The Markit iTraxx SovX CEEMEA Index of eastern European, Middle East and Africa credit-default swaps added 8 basis points to 340.

The BSE India Sensitive Index decreased 0.5 percent and China’s Shanghai Composite Index dropped 1 percent to its lowest level since July 2010 on concern government measures to tame inflation and a faltering global economy will hurt corporate earnings.

-With assistance from Ian C. Sayson in Manila. Editors: Linda Shen, Ana Monteiro, Marie-France Han

To contact the reporter on this story: Belinda Cao in New York at lcao4@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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