Bloomberg News

Emerging-Market Stocks Slide as G-20 Rebuffs Europe Aid

February 27, 2012

Emerging-market stocks fell from near a seven-month high as the Group of 20 nations declined to boost international resources to aid the euro area, increasing concern that Europe’s crisis will slow the global economy.

The MSCI Emerging Markets Index (MXEF) slid 1 percent to 1,056.51 at the close in New York, after ending last week at the highest since Aug. 4. The decline was the biggest since Feb. 10. Turkiye Halk Bankasi AS (HALKB) retreated 2.5 percent in Istanbul and China Construction Bank Corp. (939) dropped for a third day in Hong Kong as banks paced declines in emerging-market stocks. Brazil’s Bovespa (IBOV) fell for the third time in four days and Mexico’s benchmark gauge fell for a second day.

Germany’s lower house of parliament approved a second euro- region Greek bailout package, allowing German Chancellor Angela Merkel and others to shift their focus on whether to bolster the region’s bailout firewall. Finance ministers from the G-20 yesterday fended off calls for assistance pending an increase in the euro area’s own backstop. International Monetary Fund Managing Director Christine Lagarde said the world economy is “not out of the danger zone,” citing the risks of rising oil prices and financial system fragility.

“People are being reminded that this is going to be a long, drawn-out, painful affair in terms of getting Europe repaired,” Nick Chamie, head of emerging markets at RBC Capital Markets in Toronto, said by phone. The G-20’s decision “acted as a dampener on some of the enthusiasm and the risk appetite globally, and that’s weighing on emerging-market assets.”

Bovespa Weakens

Brazil’s Bovespa dropped 1.1 percent as producers followed raw material prices lower. Iron-ore producer MMX Mineracao & Metalicos SA (MMXM3) slid 3.2 percent and miner Vale SA (VALE5) slipped 1.1 percent. The Standard & Poor’s GSCI index of 24 commodities fell 0.5 percent, after advancing for seven straight days.

The ISE National 100 Index (XU100) dropped 1.5 percent in Istanbul after Deutsche Bank AG said shares may be overvalued. Anglo American Plc (AGL), a diversified mining company, slid 1.8 percent in Johannesburg, contributing to a 1.1 percent retreat in the FTSE/JSE Africa All Share Index (JALSH).

The BSE India Sensitive Index (SENSEX) tumbled 2.7 percent, the most since Sept. 22, as oil prices near a nine-month high sparked speculation energy costs will undermine the governments’ efforts to curb inflation. ICICI Bank Ltd. (ICICIBC), India’s largest private lender, slid 4.7 percent, its fourth consecutive decline.

A gauge of emerging-market financial stocks dropped 1.2 percent. China Construction Bank fell 1.7 percent in Hong Kong.

China’s Shanghai Composite Index (IFB1) rose 0.3 percent to a three-month high on expectations the government will further loosen monetary policy to spur growth, while the Hang Seng China Enterprises Index (HSCEI) of mainland shares traded in Hong Kong lost 1.3 percent.

Ruble Gains

The ruble strengthened 0.5 percent against the dollar, the best performance among twenty five emerging-market currencies tracked by Bloomberg.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose two basis points, or 0.02 percentage points, to 367, according to JPMorgan Chase & Co.’s EMBI Global Index.

Emerging-market stocks have gained 15 percent this year, fueled by monetary easing in Brazil and China, as the European Central Bank’s three-year lending program and data showing a rebound in the U.S. jobs market eased concern that a global slowdown could threaten developing-nation exports. Developed- nation stocks have advanced 9.8 percent this year.

“You need firewalls in place to prevent contagion,” Andrew Milligan, who helps oversee about $262 billion as the Edinburgh-based head of global strategy global strategy at Standard Life Investments Ltd., said in a Bloomberg Television interview from Hong Kong. “What we really want is that if an event happens the markets yawn because the walls are so high and we’re nowhere near that at all.”

To contact the reporters on this story: Zachary Tracer in New York at ztracer1@bloomberg.net; 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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