Bloomberg News

Emerging Stocks Fall First Day in Four on European Debt Concerns

November 10, 2011

Nov. 9 (Bloomberg) -- Emerging-market stocks fell for the first day in four on concern that Greece and Italy will fail to resolve their debt crises and imperil growth worldwide.

The MSCI Emerging Markets Index dropped 1.1 percent to 980.01 at 5:02 p.m. New York time, its steepest decline in more than a week. Brazil’s Bovespa fell the most in five weeks, sinking 2.5 percent, led by oil companies. Argentina’s benchmark tumbled 4.2 percent, while Russia’s Micex index tumbled 3.3 percent. The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong added 2.2 percent, helping lift the emerging-markets index as much as 1.1 percent earlier today.

LCH Clearnet SA increased the extra deposit it demands from clients to trade Italian government bonds as yields surged to euro-era records and Prime Minister Silvio Berlusconi agreed to resign once parliament passes an austerity bill that’s yet to be written. The legislation stems from a 45.5 billion-euro ($62 billion) austerity package that helped convince the European Central Bank to buy Italian bonds to try to stem borrowing costs. Greek Prime Minister George Papandreou’s talks on forming an interim government to avert the economy’s collapse dragged into a third day as a deal with the opposition stalled.

“It’s the mood of uncertainty about what form the new Italian government might take,” Neil Shearing, a London-based senior emerging markets analyst at Capital Economics Ltd., said in a telephone interview. “There needs to be some deep structural economic reforms to boost growth and to make sure the debt burden is sustainable.”

Materials and energy companies led declines with OAO Novolipetsk Steel, billionaire Vladimir Lisin’s steelmaker, tumbling as much as 6.8 percent. CNOOC Ltd. and Industrial & Commercial Bank of China earlier led advances as China’s inflation rate slowed to 5.5 percent in October from 6.1 percent the previous month, giving the government more room to ease monetary policy.

Gauge Rallies

The emerging-markets gauge rallied 19 percent from this year’s low on Oct. 4 through yesterday as Europe appeared to be near a deal to contain its debt crisis. The index lost 15 percent this year, compared with a 7.8 percent drop in the MSCI World Index. The developing nations’ index trades at 10.6 times estimated earnings, less than the 12.2 times for the MSCI World, according to data compiled by Bloomberg.

Petroleo Brasileiro SA, the heaviest-weighted company on Brazil’s Bovespa, dropped 4.2 percent, and billionaire Eike Batista’s OGX Petroleo & Gas Participacoes SA declined as much as 5 percent in Sao Paulo. Consumer-goods maker Hypermarcas SA slid 2.5 percent after Moody’s Investors Service downgraded its debt rating to Ba3 from Ba2 and Deutsche Bank AG cut its stock recommendation to “hold” from “buy.”

Industrial & Commercial Bank of China, the nation’s biggest lender, climbed 3.6 percent in Hong Kong trading. China Construction Bank Corp., the second-largest, advanced 1.6 percent.

Reserve Requirements

“The combination of easing inflationary pressures, a protracted euro debt crisis and a potential property market slump has set the scene for an imminent policy easing,” said Liu Li-Gang, a Hong Kong-based economist with Australia & New Zealand Banking Group Ltd. “The time is right” for a cut in lenders’ reserve requirements in China, he said.

South African shares declined 2 percent, the first drop in three days after Moody’s Investors Service cut the country’s sovereign credit-rating outlook to negative from stable because of “heightened political risk.”

Most emerging-market currencies tracked by Bloomberg declined. The Hungarian forint fell 3.6 percent against the dollar and the Brazilian real depreciated 2.6 percent. South Africa’s rand fell 2.8 percent.

Thailand’s SET Index, which closed today at 967.84, may end this year below 1,000, said Prapas Tonpibulsak, chief investment officer at Krungsri Asset Management Ltd. That would be a drop of at least 4.8 percent for 2011, after gains of 41 percent in 2010 and 63 percent in 2009.

Thailand Floods

The country’s worst floods in almost 70 years are threatening Bangkok’s central business district, potentially worsening the effect of a disaster that prompted the central bank to cut its 2011 economic growth forecast.

“Earnings will slow to single-digit growth in 2012 as the floods halted production and damped domestic consumption,” said Prapas, who oversees about $3.1 billion of assets. “Thailand is experiencing a once-in-a-lifetime natural disaster with a vast impact on the economy.”

--Editors: Brendan Walsh, Richard Richtmyer

To contact the reporters on this story: Ksenia Galouchko in New York at kgalouchko1@bloomberg.net; Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net; Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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