Bloomberg News

Emerging Stocks Drop Most in Two Weeks on Europe, China Concern

October 20, 2011

Oct. 20 (Bloomberg) -- Emerging-market stocks dropped the most in two weeks on concern divisions between France and Germany may hinder attempts to resolve Europe’s debt crisis and that China may continue policies to rein in lending.

The MSCI Emerging Markets Index retreated 2.7 percent, its biggest drop since Oct. 3, to 907.71 as of 5 p.m. in New York. The Shanghai Composite Index slumped 1.9 percent to a two-year low. South Korea’s Kospi Index declined 2.7 percent and Turkey’s ISE National 100 Index fell 3.3 percent. The Bovespa lost 1.7 percent in Sao Paulo and benchmark indexes slid by more than 2 percent in Poland and Hungary.

European governments discussed deploying $1.3 trillion in funds to tame the sovereign debt crisis. Two people familiar with the matter said Europe may combine the temporary and permanent rescue funds to pool as much as 940 billion euros to fight the crisis. German Chancellor Angela Merkel and French President Nicolas Sarkozy said in a joint statement they want euro-region leaders to agree on an “ambitious” plan. The European Union said a planned Oct. 23 summit will be followed by another session on Oct. 26.

“Markets in the European time zone are getting more and more worried about the outcome of this weekend’s summit,” analysts at BNP Paribas SA including Bartosz Pawlowski in London, wrote in an e-mailed note.

Poland, Brazil

KGHM Polska Miedz, the copper producer with the biggest European output, sank 6.9 percent in Warsaw as the metal’s price tumbled a fourth day in New York. Poland’s WIG20 Index fell 2.8 percent.

The Bovespa stock index fell for the third session in four as traders pared wagers for further interest-rate cuts in Brazil after the central bank lowered the benchmark rate by half a point. Miners Vale SA and MMX Mineracao & Metalicos SA slumped amid concern declines in the price for iron-ore may deepen as China’s economy slows and the European crisis persists.

The Turkish stock index fell after the central bank left its benchmark repurchase rate unchanged at 5.75 percent and dropped references to easing from its rate meeting statement.

The lira appreciated by 0.6 percent while the ruble weakened 1.6 percent against the dollar.

The Shanghai Composite Index has slumped 17 percent this year as the government raised interest rates and took steps to curb bank lending amid efforts to curb inflation.

Lack of Supervision

“It’s undeniable that the lack of supervision and management of local government financing vehicles have created some hidden risks,” Liu Mingkang, chairman of the China Banking Regulatory Commission, said in a speech.

Thailand’s SET Index slumped 3.1 percent as the central bank said it will cut the growth forecast for this year because of the country’s floods. The government warned floodwaters may reach parts of inner Bangkok amid a struggle to control a deluge that has inundated thousands of factories.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries retreated one basis point, or 0.01 percentage point, to 410, 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 19 basis points to 320, according to data provider CMA.

--With assistance by Tal Barak Harif in New York. Editor: Marie- France Han

To contact the reporter 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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