Bloomberg News

Emerging Market Stocks Drop on Concern Over China, Greece

May 16, 2012

Emerging-market stocks dropped to the lowest in four months as commodities declined and concern deepened Europe’s debt crisis will spread and China’s economic growth will slow.

The MSCI Emerging Markets Index (MXEF) fell 2.2 percent to 925.41 as of 1:30 p.m. in London, the lowest since Jan. 2. The Hang Seng China Enterprises Index (HSCEI) of Chinese stocks in Hong Kong slumped 3.4 percent, with benchmarks gauges in Russia and India losing at least 1.4 percent. Samsung Electronics Co. (005930), with the biggest weighting in the emerging market index, fell the most since October 2008 after Digitimes reported that Apple Inc. increased its purchases of semiconductors from a competitor.

Greece will hold new elections after President Karolos Papoulias failed to form a ruling coalition, threatening spending cuts required to secure 240 billion euros ($306 billion) in bailouts. Chinese banks and property developers fell in Hong Kong after the Shanghai Securities News said combined net lending for the nation’s four biggest banks was almost zero in the first two weeks of this month. The S&P GSCI index of 24 commodities fell to the lowest level this year.

“Investors are going defensive with cash and fixed-income assets because they are worried about the situation in Europe and China,” said Paul Joseph Garcia, who helps manage about $16.7 billion at Manila-based Bank of the Philippine Islands. “There are fears that Greece will not uphold its bailout plan and China is in for a hard landing.”

BRICs Fall

Concerns Greece will leave the euro and Europe’s debt crisis will spread has driven the MSCI Emerging Markets Index to a 14 percent decline from its March 2 peak.

The MSCI Emerging Markets Index, up 0.7 percent this year, trades at 9.8 times estimated earnings, compared with 11.5 for the MSCI World Index (MXWO) of advanced nations, which has added 1.9 percent in 2012. The MSCI BRIC Index (MXBRIC), which includes stocks from Brazil, Russia, India and China, dropped 2.4 percent today, wiping out this year’s gains.

Gold producers AngloGold Ashanti Ltd. (ANG) and Gold Fields Ltd., (GFI) South Africa’s two largest producers of the metal, sank more than 1.8 percent as gold declined. Johannesburg’s All Share Index (JALSH) declined 0.4 percent, a third day of losses.

Hungary’s BUX Index retreated for a fourth day, falling 1.8 percent. OTP Bank Nyrt., the country’s largest lender, slipped 3.5 percent, extending its losses in the past three days to 7.9 percent.

The Czech PX Index (PX) dropped 0.9 percent to its lowest since Dec. 20. KGHM Polska Miedz SA, Poland’s sole copper producer, helped the WIG 20 Index (WIG20) 0.9 percent lower to the weakest in more than seven months. Azoty Tarnow SA surged the most in more than a year, jumping 12 percent, after OAO Acron of Russia bid for 66 percent stake in Poland’s biggest publicly-traded chemical producer.

Turkey’s ISE National 100 Index (XU100) reversed earlier losses to trade 0.1 percent higher. Gozde Girisim Sermayesi Yatirim Ortakligi AS (GOZDE), a private equity firm owned by Yildiz Holding AS, rose in Istanbul after agreeing to buy a stake in machine tools manufacturer Makina Takim Endustrisi AS.

Dubai’s Financial Market General Index declined to a three- month low.

Currencies

The ruble weakened for a ninth day, losing 1.2 percent against the dollar as oil, Russia’s biggest export earner, declined to a six-month low.

India’s rupee led declines in emerging-market currencies, falling to a record low as concern debt-stricken Greece will abandon the euro bolstered demand for dollars and curbed bids for emerging-market assets. The Reserve Bank of India is closely observing the rupee’s movement and will act if needed, central bank Deputy Governor H.R. Khan told reporters in Pokhara in Nepal today, without elaborating. Separately, Deputy Governor K.C. Chakrabarty said in Mumbai that the monetary authority isn’t looking to protect any rupee level.

“The fiscal crunch is intensifying in Greece and Spain, and as a result, contagion and risk aversion may escalate further in coming sessions,” George Glynos, an economist at Johannesburg-based ETM Analytics, wrote in e-mailed comments today. For now, the trend for emerging-market currencies and bonds “is toward weakness,” he said.

Chinese Lending

The MSCI gauge for technology stocks in emerging markets fell for a 10th day, its longest losing streak since 2001 and the worst performer among the broader index’s 10 industry groups. Semiconductor Manufacturing International Corp. (981) sank 11 percent after MSCI Inc. said it will removed the stock from its MSCI China Index.

The Shanghai Composite Index dropped 1.2 percent and the gauge for stocks listed in Hong Kong slumped the most since November after Deutsche Bank AG said investors should underweight Chinese stocks on prospects earnings growth will be hurt by industry overcapacity.

Bank of China Ltd. slid 3 percent in Hong Kong and China Construction Bank Corp. (939) fell 2.8 percent. Combined net lending of China’s four biggest banks was almost zero in the two weeks ended May 13, Shanghai Securities News reported, citing unidentified people familiar with the matter.

The Markit iTraxx SovX CEEMEA Index of eastern European, Middle East and Africa credit-default swaps rose six basis points to 326, according to data compiled by Bloomberg.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries slipped two basis points to 385, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporter on this story: Ian Sayson in Manila at isayson@bloomberg.net; Jason Webb in London at jwebb25@bloomberg.net. Stephen Gunnion at sgunnion@bloomberg.net

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


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