Bloomberg News

Emerging-Market Stocks Decline for Third Day on European Debt

January 09, 2012

Jan. 6 (Bloomberg) -- Emerging-market stocks fell for a third day, paring the benchmark index’s weekly gain, on concern Europe’s worsening debt crisis will hurt exports to the region.

The MSCI Emerging Markets Index fell 0.6 percent to 927.06 at the close in New York, cutting this week’s gain to 1.2 percent. South Korea’s Kospi Index slid 1.1 percent as regulators said they were investigating rumors about an explosion in North Korea. Brazil’s Bovespa index climbed after 2011 inflation met the government’s target. The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong fell the most in three weeks.

German factory orders dropped the most in almost three years in November as the euro region economy edged toward a recession and global demand weakened. Fitch Ratings said it was downgrading Hungary to junk level. Hungarian Prime Minister Viktor Orban said the country needed to get an International Monetary Fund aid deal, after the forint sank to a record and a debt auction fell short of the target. U.S. employers added more workers to payrolls than forecast in December and the jobless rate declined to an almost three-year low.

“It’s clear that the U.S. economy is doing a little bit better than anticipated, but the main focus is on Europe’s debt problems right now,” Greg Lesko, who oversees $750 million as managing director of Deltec Asset Management LLC, said in a telephone interview from New York.

The MSCI emerging-market index slipped 20 percent last year, while the MSCI World Index of developed nations lost 7.6 percent amid concern Europe’s worsening debt crisis and slowing global growth will hurt corporate earnings. The gauge of developing nations is valued at 9.4 times estimated profit, compared with the MSCI World’s multiple of 11.3 times.

Brazil, China

In Brazil, homebuilder Brookfield Incorporacoes SA led gains by stocks linked to credit growth after saying fourth- quarter sales rose 36 percent. Consumer goods maker Hypermarcas SA rose 9 percent to a three-month high after O Estado de S. Paulo said Banco BTG Pactual SA is in talks to join the company’s controlling block.

Consumer prices rose 6.5 percent in 2011, the national statistics agency said today in Rio de Janeiro, lower than the median forecast of 6.56 percent among 35 economists surveyed by Bloomberg.

China Shanshui Cement Group Ltd. slid 7.8 percent, the worst performer in MSCI’s emerging-market index, leading declines among cement producers listed in Hong Kong, on speculation earnings will be hurt by a possible carbon tax. China is considering imposing the tax in the middle or end of the 2011-2015 period, the Economic Information Daily reported.

The South Korean won led declines among emerging market currencies, dropping 0.9 percent to its weakest level since Dec. 20. No evidence has come to support rumors which centered on speculation of an explosion in North Korea, Kim Soo Mi, a spokeswoman for the Financial Supervisory Service, said in Seoul.

U.S. Jobs Data

U.S. payrolls rose by 200,000 in December, following a revised 100,000 rise in November that was smaller than first estimated, Labor Department figures showed in Washington. The median projection in a Bloomberg News survey called for a December gain of 155,000. The unemployment rate unexpectedly fell to 8.5 percent, the lowest since February 2009, while hours worked and earnings climbed.

The peso had its best weekly gain in a month on speculation strength in the U.S. economy will boost exports to Mexico’s biggest trading partner. The IPC Index fell 0.6 percent today, extending its weekly loss to 0.7 percent.

Stock Inflows

Emerging-stock funds had a second straight week of inflows, taking in $800 million in the week ended Jan. 4, Markus Rosgen, an analyst at Citigroup Inc., wrote in a report today, citing figures compiled by EPFR Global. Global equity funds had outflows of $400 million, according to the report.

“Investors are hopeful that the current low-valuation base across emerging-market equities provides a good basis for performance this year but clearly remain wary of the threat to global growth posed by the unresolved euro-zone debt crisis,” Chris Weafer, chief strategist at Troika Dialog in Moscow, said in an e-mailed comment.

Hungarian stocks extended their weekly skid to 5.1 percent, the worst performance since September. Stocks fell after Fitch Ratings said it was downgrading Hungary to BB+, the highest junk level, with a negative outlook.

Hungarian Forint

The forint strengthened 1.5 percent against the euro and 10-year government bonds in forint rose, cutting the yield 32 basis points to 10.077 percent, as Orban pledged to cooperate with central bank President Andras Simor after a dispute about the bank’s independence threatened the country’s bailout.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose two basis points, or 0.02 percentage points, to 422, 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 five basis points to 365, according to data provider CMA.

--With assistance from Zachary Tracer in New York. Editors: Marie-France Han, Glenn J. Kalinoski

To contact the reporters on this story: Jason Webb in London at jwebb25@bloomberg.net; Tal Barak Harif in New York at tbarak@bloomberg.net

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


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