Bloomberg News

Emerging Stocks Fall Third Day on Higher Spanish, French Yields

November 18, 2011

Nov. 17 (Bloomberg) -- Emerging-markets stocks fell for a third day, the longest losing streak in six weeks, after yields jumped at auctions of Spanish and French bonds, fueling concern Europe’s debt crisis was worsening.

The MSCI Emerging Markets Index slid 0.8 percent to 951.97 at 5:22 p.m. in New York. Brazil’s Bovespa declined 2.7 percent, retreating from a one-week high, while Chile’s benchmark fell 1.8 percent. The Bombay Stock Exchange Sensitive Index decreased 1.9 percent. The WIG20 Index sank 1.6 percent in Warsaw and the Micex Index slumped 0.5 percent in Moscow.

Spain sold 3.56 billion euros ($4.8 billion) of a new 10- year benchmark bond at an average yield of almost 7 percent, the most since the euro’s creation. The yield on French bonds due in July 2016 jumped to 2.82 percent from 2.31 percent in the previous sale of the securities on Oct. 20. German Chancellor Angela Merkel said that neither joint euro-area bonds nor using the European Central Bank as a lender of last resort offer solutions to the debt crisis at present. The ECB reportedly bought Spanish and Italian bonds today.

“Emerging markets are a bit overawed by the prospects of the European debt collapse,” Chris Palmer, who helps manage $2.5 billion in Latin American assets as Henderson Group PLC’s London-based director of global emerging markets, said in a phone interview. “This is the first real stress test for the ECB and the euro. One of the big problems has been a lack of consensus and how quickly the leaders seem to fall out of consensus after they reach an agreement.”

With Spanish unemployment at a 15-year high of 21.5 percent, polls show the Socialist government will lose to the conservative People’s Party in elections on Nov. 20.

Brazil, Poland, India

OAO Gazprom, the world’s biggest gas producer, was the biggest contributor to the index’s decline, shedding 2 percent as the price of Brent oil fell 3.3 percent in London.

The Bovespa stock index retreated as concern intensified that the slowdown in Europe and China will hurt corporate earnings growth in Brazil.

Oil producer Petroleo Brasileiro SA and miner Vale SA dropped 2.7 percent, following crude and metals prices lower.

LLX Logistica SA, the port developer controlled by billionaire Eike Batista, fell as much as 5.6 percent, the most in a month. Banco Santander Brasil SA declined 4.6 percent.

ICICI Bank Ltd., India’s biggest private lender, slipped 1.4 percent in Mumbai to the lowest level since October 2009. Indian stocks, the worst performers among Asia’s biggest markets this year, may suffer a “sharp correction,” K.N. Sivasubramanian, chief investment officer of Franklin Equity India, wrote in an e-mail dated Nov. 15.

Chinese Inflation

The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong dropped 1 percent after the People’s Bank of China said in its third-quarter monetary policy report that while inflation may continue to moderate, “the foundation of price stability is not yet solid.”

China’s central bank reiterated Premier Wen Jiabao’s pledge to “fine-tune” policies when needed. “Extremely loose” global monetary conditions, and rising domestic labor and resource costs may “exacerbate inflationary expectations,” according to a report on the central bank’s website.

Hynix Semiconductor Inc. rallied 3.8 percent in Seoul after a rival lost a trial against the company and Micron Technology Inc. South Korea’s Kospi Index jumped 1.1 percent.

The Turkish lira weakened 1.2 percent against the dollar and the Colombian peso fell 0.7 percent. The Hungarian forint rose 2.1 percent after the Economy Ministry said the government is starting negotiations with the International Monetary Fund on a “new type” of cooperation.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose seven basis points, or 0.07 percentage point, to 413, 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 17 basis points to 321, according to data provider CMA.

--With assistance from Ian Sayson in Manila. Editors: Linda Shen, Glenn J. Kalinoski

To contact the reporters on this story: Ksenia Galouchko in New York at kgalouchko1@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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