Bloomberg News

Emerging-Market Stocks Decline to Week Low on Europe Jitters

December 09, 2011

Dec. 8 (Bloomberg) -- Emerging-market stocks dropped to the lowest level in a week as European Central Bank President Mario Draghi damped speculation that the ECB would step up purchases of government bonds and as machinery orders in Japan unexpectedly fell.

The MSCI Emerging Markets Index retreated 1.2 percent to 947.59, the lowest since Nov. 30. Brazil’s Bovespa Index retreated 2.1 percent as inflation increased faster than forecast. The Hang Seng China Enterprises Index slipped 0.9 percent in Hong Kong and the BSE India Sensitive Index, or Sensex, plummeted 2.3 percent in Mumbai. Russia’s Micex index climbed for the first time in three days.

ECB policy makers meeting in Frankfurt lowered the benchmark interest rate by a quarter percentage point to 1 percent to match a record low. Draghi said he did not necessarily signal that the ECB would step up government bond purchases when speaking before lawmakers in Brussels last week. The European Union is the biggest trading partner of countries including India and South Africa.

“Investors are closely watching the crisis in Europe before deciding whether to pour more money into the equities of emerging markets,” said Jotika Savanananda, the president of Bangkok-based SCB Asset Management Co., which manages about $18 billion of assets. “They are ready to move their investments out of those risky assets if the situation is worsening.”

Brussels Summit

MSCI’s emerging-markets index has slid 18 percent this year, compared with the 8.2 percent decline in the MSCI World Index of developed markets, amid concerns of faltering growth in the U.S., Europe and China. The developing-nations gauge trades for 10.2 times estimated earnings, compared with the four-year average of 12.2 times, according to data compiled by Bloomberg.

Europe’s leaders are meeting in Brussels for talks to frame the fifth “comprehensive” solution in 19 months to a debt crisis that’s left Germany and France facing the threat of losing their AAA rating from Standard & Poor’s. The Bank of Korea maintained its benchmark rate at 3.25 percent for a sixth month. “Downside risks to growth are high,” the central bank said in a statement today.

In Brazil, the Bovespa Index fell the most since Nov. 17 as Europe’s debt crisis sent global stocks and commodities lower while a report showed faster-than-forecast inflation of 0.52 percent last month.

Vale, Petrobras

Miner Vale SA and state-controlled oil producer Petroleo Brasileiro SA, the index’s heaviest-weighted companies, slumped as crude and copper prices retreated.

Japan’s machinery orders in October decreased 6.9 percent from a month earlier, the Cabinet Office said in Tokyo today, a larger decline than predicted by all 27 economists surveyed by Bloomberg News.

KT Corp., South Korea’s largest phone and Internet company, fell 2.6 percent, the most since Nov. 30. The company will put fourth-generation services on hold after a South Korean court ordered the carrier to keep 2G networks, spokeswoman Kim Yoon Jeong said by phone.

Russian stocks rose 0.6 percent, advancing for the first time in three days, as VTB Group, the country’s biggest lender, posted a jump in profit.

South Africa’s British American Tobacco Plc, Europe’s largest cigarette maker, leaped 3.4 percent. The company will be included in the Johannesburg Stock Exchange’s Top 40 index from Dec. 19 after a quarterly review of companies’ index weightings.

Emerging Market Outlook

Emerging-market stocks will outperform those of developed nations next year as monetary policy becomes more “accommodative,” according to Fidelity Worldwide Investment. Citigroup Inc. said developing shares may advance about 28 percent by the end of 2012.

“We believe that emerging markets will ultimately deliver better economic and stock-market performance in 2012 than their overly indebted developed counterparts,” Dominic Rossi, Fidelity’s global chief investment officer for equities, said in a report e-mailed today.

Chinese companies listed in Hong Kong dropped as a Bloomberg poll of global investors showed 61 percent of respondents predict China will face a banking crisis in the next five years. Only 10 percent were confident China’s banks will escape trouble, according to the quarterly poll of 1,097 investors, analysts and traders who are Bloomberg subscribers.

Chinese utility companies retreated before a report that’s expected to show the nation’s industrial output expanded in November at the weakest pace since August 2009 and inflation slowed. China Resources Power Holdings Co. slipped 1.7 percent to HK$13.54. Datang International Power Generation Co. lost 2.4 percent to HK$2.44.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose four basis points, or 0.04 percentage point, to 412, according to JPMorgan Chase & Co.’s EMBI Global Index.

--With assistance by Tal Barak Harif and Zachary Tracer in New York. Editor: Marie-France Han

To contact the reporter on this story: Anuchit Nguyen in Bangkok at anguyen@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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