Bloomberg News

Emerging Stocks Fall to Seven-Week Low After Hungary Cut to Junk

November 25, 2011

Nov. 25 (Bloomberg) -- Emerging-market stocks fell to a seven-week low after Moody’s Investor Services downgraded Hungary’s debt to junk grade and a European Union official said the euro area’s contagion is spreading to core countries.

The MSCI Emerging Markets Index slid 1.4 percent to 876.11 at 12:36 p.m. in London, headed for the lowest level since Oct. 6. Hungary’s BUX Index slumped 4.3 percent, which would be the biggest slump in two months, and yields jumped the most since 2009. Polish, Czech and Russian equities all dropped more than 1 percent. South Africa’s All Share index fell 0.7 percent.

The cost of insuring Hungary’s debt jumped to a record after Moody’s lowered the country’s foreign- and local-currency bond ratings one step to junk after Prime Minister Viktor Orban reversed a policy of shunning the International Monetary Fund to request assistance, while insisting he doesn’t want conditions attached to any new credit line. Default swaps for European sovereign bonds also hit a record as European Union Economic and Monetary Affairs Commissioner Olli Rehn said it looks like contagion is spreading to core countries.

“Uncertainty is weighing over market sentiment,” Sreesankar Radhakrishnan, senior vice president at Tata Securities Ltd. in Mumbai., said in a phone interview today. “The volatility will restrict fund inflows into emerging markets as long as things remain hazy.”

Funds investing in developing-nation stocks withdrew $2.7 billion in week ended Nov. 23, Citigroup Inc. analysts led by Markus Rosgen wrote in a report today, citing EPFR Global data. South Korea had the most outflows in the Asia-excluding-Japan region during the week, according to the report.

Developing Nations

MSCI’s developing-nation index has dropped 24 percent this year, compared with the 14 percent decline in the MSCI World Index of developed countries. The emerging-market gauge trades at 9.7 times estimated earnings, less than 11.2 times for the MSCI World, according to data compiled by Bloomberg.

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo urged euro-area politicians to take bold steps toward fiscal union to end the debt crisis, and said they should not rely on the ECB.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed four basis points to an all-time high of 384.5.

Hungary’s foreign- and local-currency bond ratings were cut one step to Ba1, the highest junk-level score, from Baa3, Moody’s said in a statement late yesterday, assigning a negative outlook.

The yield on benchmark five-year bonds advanced 89 basis points, or 0.89 percentage point, to 9.78 percent at 12:33 p.m. in Budapest. The forint depreciated 0.8 percent to 314.07 against the euro.

South Africa, Poland

South Africa’s All Share Index dropped 0.6 percent, led by a 2.6 percent decline in Sasol Ltd., the biggest producer of gasoline from coal. Crude headed for a second weekly decline in New York as speculation that Europe’s debt crisis threatens the global economy countered concern that violence in Saudi Arabia may destabilize the world’s biggest crude exporter.

Poland’s WIG 20 Index slid 1.3 percent as banks fell across Europe after a report said that region’s bailout fund may not be able to raise enough funds. PKO Bank Polski SA, Poland’s biggest bank, dropped 1.3 percent. Bank Pekao SA, majority-owned by UniCredit SpA, declined 2.2 percent.

Komercni Banka As fell 2.6 percent, leading a 1.7 percent fall in Czech stocks.

The Micex Index declined 0.8 percent in Moscow, headed for its steepest weekly decline in two months. United Co. Rusal, the world’s largest aluminum company, slid 5.8 percent, the lowest since Rusal’s depositary receipts started trading in Moscow in December 2010.

Extra Yield

The extra yield investors demand to own emerging-market debt over U.S. Treasuries declined two basis points, or 0.02 percentage points, to 440, 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 13 basis points, or 0.13 percentage point, to 386.6, according to data provider CMA.

--Editors: Linda Shen, Gavin Serkin

To contact the reporter on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net

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


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