Bloomberg News

Emerging-Market Stocks Drop a Second Day on Europe’s Debt Crisis

November 17, 2011

Nov. 16 (Bloomberg) -- Emerging-market stocks fell for the second day as European Commission President Jose Barroso said the region is facing a “truly systemic crisis” and the Bank of England warned of a weaker outlook.

The MSCI Emerging Markets Index declined 0.9 percent to 960.05 at 5:16 p.m. in New York, the biggest drop since Nov. 10. The Hang Seng China Enterprises Index in Hong Kong tumbled 2.9 percent and South Korea’s Kospi Index dropped 1.6 percent. Brazil’s Bovespa index rose 0.5 percent on a jump in oil prices while Mexico’s IPC index slid 1.6 percent.

Europe’s economic recovery has hit a standstill, Barroso said today at the European Parliament in Strasbourg, France, and there is “no way out of the crisis” without economic growth. Britain faces a “markedly weaker” outlook for the economy and danger from Europe’s crisis, Bank of England Governor Mervyn King said. The difference in yield between 10-year Italian bonds and German bunds stayed at more than 5 percentage points as the securities failed to hold an earlier advance after the European Central Bank was said to step up purchases of the nation’s debt.

“The markets are still very much on the defensive,” Benoit Anne, the London-based head of emerging-markets strategy at Societe Generale SA said in a phone interview. “If it were just a matter of political personalities, the solution would be very simple. But unfortunately that’s not the case. There’s still much to be done on the European front.”

Property Stocks

The Shanghai Composite Index slid 2.5 percent, with property stocks falling the most among five industry groups. China Vanke Co., the country’s biggest developer by market value, slumped 3.4 percent after Shanghai Securities News reported it may cut prices for home projects in Shanghai by more than 20 percent at the end of this week.

The Bovespa stock index rose to a one-week high, reversing an earlier loss. A jump in oil prices lifted OGX Petroleo & Gas Participacoes SA, which advanced 1.5 percent. Homebuilder Gafisa SA fell 8.5 percent in Sao Paulo after reporting a 60 percent decline in third-quarter profit.

Taiwan’s Taiex Index fell 1.4 percent. India’s BSE India Sensitive Index lost 0.6 percent.

MSCI Changes

Sun Art Retail Group Ltd., a Chinese hypermarket operator, gained 2.5 percent in Hong Kong after MSCI Inc. said the company will join its Emerging Markets Index. The changes to the index will take effect at the close of trading on Nov. 30.

Amendments to indexes can alter share prices as passively managed funds buy and sell stocks to mirror the benchmark indexes. Some $321.9 billion was invested in exchange-traded funds linked to MSCI indexes at the end of October, according to MSCI. About $3 trillion of funds are benchmarked against its indexes globally.

OAO Raspadskaya, a Russian coal producer, surged as much as 23 percent after the company said it plans to buy back as much as 78.1 million shares, or 10 percent of its stock. MSCI said it removed Raspadskaya from its MSCI Russia Index. The Micex index fell 0.3 percent.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose 5 basis points, or 0.05 percentage point, to 407, 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 fell six basis points to 338, according to data provider CMA.

--Editor: Marie-France Han, Glenn J. Kalinoski

To contact the reporter on this story: Ksenia Galouchko in New York at kgalouchko1@bloomberg.net; Santanu Chakraborty in Mumbai at schakrabor11@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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