Bloomberg News

Emerging Stocks Drop on Europe Debt, China Economic Concerns

November 18, 2011

Nov. 18 (Bloomberg) -- Emerging-market stocks fell, driving the benchmark index to its worst week in two months, as Europe’s debt crisis deepened, China’s home prices fell in some of its biggest cities and the risk of Chinese bad loans rose.

The MSCI Emerging Markets Index dropped 1.6 percent to 936.44 as of 11:54 a.m. Mumbai time. The gauge has fallen 3.6 percent this week, the most since the week ended Sept. 23. Benchmark indexes in South Korea, Taiwan and India fell at least 1.5 percent as German Chancellor Angela Merkel rejected French calls to use the European Central Bank as a crisis backstop.

Industrial & Commercial Bank of China Ltd. led declines for lenders in the Hang Seng China Enterprises Index after new home prices fell last month in some cities including Shanghai and a person with knowledge of the matter said China’s banking regulator warned lenders that some projects backed by local governments may run out of funds.

“Markets are pricing in the risks the world economy faces,” Aneesh Srivastava, who manages $427 million in assets at chief investment officer at IDBI Federal Life Insurance Co., said by phone from Mumbai. “Slowing growth in developing countries is compounding the problems caused by Europe’s debt crisis and hurting investor sentiment.”

Growth in Southeast Asian economies may have peaked last quarter as the European debt crisis and Thai floods hurt the outlook for exports. Malaysia’s gross domestic product increased 4.8 percent in the three months through September from a year earlier, after a 4 percent expansion the previous quarter, based on the median of 25 estimates from a Bloomberg News survey taken before a central bank’s report today. Thailand’s growth probably quickened to 4.5 percent from 2.6 percent, according to a survey of 11 economists.

Chinese Banks

Almost eight stocks fell for each that rose on the developing-nations gauge today. Emerging-market equities have trailed their developed-nation counterparts this year, losing 19 percent, compared with the 9 percent decline in the MSCI World Index. The gauge of 21 developing nations’ markets trades at 10.1 times estimated earnings, compared with 11.7 times for the MSCI World, according to data compiled by Bloomberg.

Shares of the four largest Chinese banks fell in Hong Kong, led by Agricultural Bank of China Ltd., which dropped 4.6 percent. ICBC, the biggest lender, slumped 3.3 percent. China Vanke Co., the nation’s biggest listed property developer, sank 4.5 percent in Shenzhen trading.

Chinese home prices fell in 33 of 70 cities monitored by the government in October, the statistics bureau said today. The China Banking Regulatory Commission told lenders last week that loans to property developers are likely to sour as sales slow, said a person with knowledge of the matter.

Merkel listed using the ECB as lender of last resort alongside joint euro-area bonds and a “snappy debt cut” as proposals that won’t work. Investors drove up the funding costs of France and Spain as the countries sold 11.6 billion euros ($15.6 billion) of debt yesterday.

Steel Demand

China Steel Corp., Taiwan’s largest producer, slid 1.8 percent after it said it’s in talks with BHP Billiton Ltd., Rio Tinto Group and Vale SA to delay or cut iron ore and coking coal deliveries as lower output reduces raw-material needs. The Taiwanese company joins mainland Chinese rivals in cutting production amid concerns a global economic slowdown may curb steel demand from automakers and builders.

Samsung Electro-Mechanics Co., an electronic parts maker, dropped 3.5 percent in Seoul, while Samsung Electronics Co., Asia’s biggest maker of chips, flat screens and mobile phones, lost 1.2 percent after the latter said in a regulatory filing that it’s considering a merger with Samsung LED Co., a joint venture with Samsung Electro-Mechanics.

Shareholder Value

“Given that LED business has been perceived as a growth driver at Samsung Electro, market concerns will continue that the possible purchase by Samsung Electronics could be negative to Samsung Electro’s shareholder value,” Baek Jong Suk, an analyst with Hyundai Securities Co., wrote in a report today.

Suzlon Energy Ltd., the world’s fifth-largest wind turbine maker, tumbled 11 percent in Mumbai after Samanvaya Holdings Pvt., part of the Suzlon’s founder group, cut its stake in the company to 1.86 percent to 3.94 percent, according to an exchange filing. The stock, set for the lowest close since its 2005 debut, was the biggest loser on the emerging-markets gauge.

--Editors: Allen Wan, Richard Frost

To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net;

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net.


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