Bloomberg News

Emerging Stocks Fall to Two-Week Low on Fed Minutes, Earnings

July 11, 2012

Emerging-market stocks fell, dragging the benchmark index to a two-week low, as Federal Reserve meeting minutes disappointed investors looking for a stronger signal of stimulus to fight the global slowdown.

The MSCI Emerging Markets Index (MXEF) dropped 0.2 percent to 932.38 in New York, retreating for a sixth straight day, the longest losing streak since May 18. Russia’s Micex Index (INDEXCF) slumped 1.2 percent after UBS AG put VTB Group on its list of least- preferred stocks. Embraer SA, a Brazilian aircraft maker, sank 7.3 percent to push the Bovespa lower after saying its backlog of orders declined in the second quarter.

Technology companies sank the most among industry groups in the developing-nations gauge after Applied Materials Inc. (AMAT:US), the U.S. chipmaking-equipment provider, said sales (AMAT:US) won’t reach the previous outlook as demand in Europe and China ebbs. Federal Reserve minutes from a June meeting today showed comments of members that strains in global markets stemming from Europe’s debt crisis had increased since their April meeting. More action may be necessary to boost the labor market and meeting its inflation target, a few members said.

“Talks that indicate more easing and stimulus is not enough to satisfy the markets today the possibility of easing has already been anticipated,” Dave Lutz, head of exchange- traded fund trading and strategy at Stifel Nicolaus & Co., said by phone from Baltimore yesterday. “We’ll probably see a sharp sell-off and get back to our lows until there is more action.”

The developing-nation gauge has climbed 1.7 percent this year, compared with a 3.1 percent gain in the MSCI World Index. Shares in the emerging-markets index traded at 10.1 times estimated earnings, compared with MSCI World’s multiple of 12.2, according to data compiled by Bloomberg.

Further Action

The Federal Open Market Committee said on June 20 it will expand its Operation Twist program to extend the maturities of assets on its balance sheet, and it stands ready to take further action as needed.

The minutes show policy makers considering the risk that further easing might pose. Some members of the committee noted that excessive purchase of Treasuries could “at some point, lead to deterioration in the functioning of the Treasury securities market that could undermine the intended effects of the policy.”

The IShares MSCI Emerging Markets Index exchange-traded fund, the ETF (EEM:US) tracking developing-nation shares, rose for the first time in five days, adding 0.5 percent to $38.40.

The Chicago Board Options Exchange Emerging Markets ETF Volatility Index (VXEEM), a measure of options prices on the fund and expectations of price swings, fell 4.6 percent to 26.62.

Russia Stocks

Russia’s Micex Index snapped a two-day advance, led lower by VTB Group. Russia’s second-largest lender slipped 3 percent after being added to UBS’ least-preferred stock list. UBS cited the bank’s reliance on revenue from trading.

Embraer led the Bovespa lower after tumbling the most in 11 months in Sao Paulo. The aircraft company said late yesterday that the value of orders it has received but hasn’t yet fulfilled fell to $12.9 billion as of June 30, from $15.4 billion at the end of 2011. The benchmark gauge dropped 0.6 percent.

The WIG20 (WIG20) slid 1.2 percent in Warsaw. Sygnity SA (SGN), a Polish software producer, dropped 7 percent, the most since Sept. 12, after Chief Executive Officer Norbert Biedrzycki quit. South Africa’s FTSE/JSE Africa All Share Index (JALSH) weakened 0.8 percent.

The Turkish lira strengthened for a second day against the dollar, gaining 0.5 percent, after the nation’s current-account deficit shrank more than expected.

Applied Materials said yesterday that net sales won’t reach the previous outlook, while Hyundai Department Store Co. said investors may have to lower expectations for earnings of retailers.

Emerging-Market Growth

Growth in emerging-market economies probably slowed in the second quarter as the euro region’s debt and banking crisis hurts business confidence around the globe, HSBC Holdings Plc said, citing a purchasing-managers’ survey.

The HSBC Emerging Markets Index, which is compiled by London-based Markit Economics and tracks conditions at more than 5,000 reporting companies, fell to 53 from 53.6 in the previous three months. The rate of expansion was weaker than the average for the past three years, HSBC said.

“Earnings forecasts are declining and are likely to have somewhat further to fall,” Citigroup Inc. analysts led by Geoffrey Dennis said in a report dated July 9. “Given the macro worries of the second quarter, it may be no surprise that many skeptical investors -- faced with further earning declines and disappointments -- are not impressed by cheap valuations.”

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell seven basis points, or 0.07 percentage point, to 364, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporters on this story: Christine Harvey in New York at charvey32@bloomberg.net; Chris Kay in London at ckay5@bloomberg.net

To contact the editors responsible for this story: Darren Boey at dboey@bloomberg.net; Gavin Serkin at gserkin@bloomberg.net; Tal Barak Harif at tbarak@bloomberg.net


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Companies Mentioned

  • AMAT
    (Applied Materials Inc)
    • $20.95 USD
    • 0.46
    • 2.2%
  • EEM
    (iShares MSCI Emerging Markets ETF)
    • $40.89 USD
    • 0.15
    • 0.37%
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