Bloomberg News

Emerging Stocks Retreat a Third Day on China, Europe Concerns

December 28, 2011

Dec. 28 (Bloomberg) -- Emerging-market stocks fell for a third day on concern that slower growth in China and Europe’s sovereign-debt crisis will damp company earnings.

The MSCI Emerging Markets Index slumped 1.2 percent to 913.11 at the close in New York, the sharpest drop since Dec. 19. The Hang Seng China Enterprises Index sank 1.5 percent and South Korea’s Kospi Index fell 0.9 percent. The Bovespa dropped 2.5 percent in Sao Paulo as lower commodities prices dimmed the outlook for Brazilian raw-material producers.

A coincident economic index for China, a measure of current activity released by the China Economic Monitoring & Analysis Center and Goldman Sachs Group Inc., fell to 101.6 in November, the lowest in two years. The European Central Bank’s balance sheet increased to a record 2.73 trillion Euros ($3.55 trillion) after a surge of bank lending to stem the debt crisis.

China’s “market is giving increasingly worrying signals to the world,” Slava Smolyaninov, analyst at UralSib Capital in Moscow, wrote in a research note for clients. “How the situation in the world’s growth engine will develop over the next few months will have a very strong impact on” commodity prices and emerging-market equities, she wrote.

The MSCI Emerging Market Index has lost 21 percent this year as Europe’s debt problems compounded concerns about slowing global growth. Shares on the developing nation index are trading at 10 times estimated earnings, compared with 12 times on the MSCI World Index, which has fallen 8.8 percent this year.

Goldman Sachs

In the past decade, mutual funds poured almost $70 billion into Brazil, Russia, India and China, stocks more than quadrupled gains in the Standard & Poor’s 500 Index and the economies grew four times faster than America’s.

Now Goldman Sachs Group Inc., which coined the term BRIC for the emerging-market nations, says the best is over.

BRIC funds recorded $15 billion of outflows this year as the MSCI BRIC Index sank 24 percent, EPFR Global data show. The gauge, which beat the S&P 500 by 390 percentage points from November 2001 through September 2010, has trailed the measure for five straight quarters, the longest stretch since Goldman Sachs forecast the countries would join the U.S. and Japan as the top economies by 2050.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose six basis points, or 0.06 percentage point, to 414 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.

Trading Band

Italy sold 9 billion euros ($11.8 billion) of six-month Treasury bills and borrowing costs plunged from the previous auction as the government passed measures aimed at trimming the euro region’s second-biggest debt. The 179-day bills sold at a rate of 3.251 percent, down from a 14-year-high of 6.504 percent at the last auction of similar maturity securities on Nov. 25.

The ruble weakened 1.1 percent versus the dollar after Russia’s central bank widened its trading band for the currency.

Bank Rossii increased the trading corridor in which it manages the ruble against its target dollar-euro basket to 6 rubles from 5 rubles, the Moscow-based regulator said in a statement on its website yesterday. It also reduced the volume of currency interventions needed to move the band by 5 kopeks to $500 million from $600 million.

The Micex Index fell 0.2 percent in Moscow. The BUX Index slid 1 percent in Hungary and the WIG20 Index retreated 1.2 percent in Warsaw.

The forint depreciated 1.2 percent against the euro, the worst performance among 25 emerging market currencies tracked by Bloomberg.

Oil Falls

Oil declined from a six-week high, with crude prices 2 percent lower, as concerns eased that Iran will block the Strait of Hormuz, a corridor linking the Persian Gulf with international ports.

Petroleo Brasileiro SA, Brazil’s state-controlled oil company, followed oil prices lower, retreating 3.5 percent.

Indian stocks dropped for the second day before a report this week that may show the nation’s current-account deficit widened to a record.

--With assistance from Zachary Tracer and Tal Barak Harif in New York and Ian Sayson in Manila. Editors: Marie-France Han, Brendan Walsh

To contact the reporter on this story: Jason Webb in London at jwebb25@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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