Bloomberg News

Emerging Stocks Cap Longest Stretch of Losses Since November

July 12, 2012

Emerging-market stocks fell for a seventh day on concern the global slowdown is worsening after South Korea unexpectedly cut interest rates and U.S. consumer confidence stagnated.

The MSCI Emerging Markets Index (MXEF) sank 2 percent to 914.07 by 4:30 p.m. in New York, the biggest drop since May 23 and the longest losing streak since November. Tim Participacoes SA (TIMP3) contributed the most to the Bovespa index’s retreat in Brazil after a report the telecommunications company may be blocked from selling mobile services. Benchmark gauges fell at least 1 percent in India, Turkey and Hungary. The Kospi Index (KOSPI) in Seoul and Chinese stocks listed in Hong Kong slid 2.2 percent.

The Bank of Korea cut borrowing costs for the first time in more than three years, saying the economy is growing less than expected, while the Bank of Japan (8301) altered its stimulus program without expanding it. A report due tomorrow is expected to show China’s economy grew at the slowest pace in three years in the second quarter. The Bloomberg Consumer Comfort Index held at minus 37.5 in the week ended July 8 as scant improvement in the labor market left Americans more discouraged about the economy.

“The bold policy responses have been met by a muted investor appetite at best,” Benoit Anne, head of emerging- market strategy at Societe Generale, wrote in an e-mailed note to clients. “We got the typical, ‘‘oh, I did not think that things were that bad’’ response, which means a sell-off in risky assets in the face of a deteriorating macro outlook. Investors are scared about the seriousness of the disease.”

Consumer Comfort

Some 86 percent of those surveyed in the Bloomberg Consumer Comfort Index said the economy was in bad shape. That’s 21 percentage points higher than the average since 1985. Jobless claims in the U.S. decreased by 26,000 in the week ended July 7 to 350,000, the fewest since March 2008, Labor Department figures showed today.

The emerging-markets gauge has fallen 0.3 percent so far this year, compared with a 2.1 percent gain in the MSCI World Index. Shares in the developing-nation measure are trading at 9.9 times estimated earnings, compared with the MSCI World’s multiple of 12.1, according to data compiled by Bloomberg.

The IShares MSCI Emerging Markets Index exchange-traded fund, the ETF (EEM:US) tracking developing-nation shares, slid 1.7 percent to $37.76.

The Chicago Board Options Exchange Emerging Markets ETF Volatility Index (VXEEM), a measure of options prices on the fund and expectations of price swings, rose 5.5 percent to 28.08, the most since June 25.

Brazil

The Bovespa slumped 0.3 percent as Tim Participacoes dropped 7.5 percent, the most since Aug. 8. Communications Minister Paulo Bernardo said the Brazilian division of Telecom Italia SpA (TIT) may be blocked from selling mobile services to new subscribers if the company fails to improve operations as client’s complaints mount, O Estado S. Paulo reported.

The Bank of Korea unexpectedly lowered the benchmark seven- day repurchase rate by 25 basis points to 3 percent, the first cut since February 2009, the central bank said in a statement in Seoul today. Two of 16 economists surveyed by Bloomberg predicted the move while the rest forecast no change.

The benchmark Micex Index lost 0.8 percent in Moscow, with 24 of the gauge’s 30 stocks falling. OAO MRSK Holding, Russia’s largest electricity distribution company, and coal producer OAO Raspadskaya were among leading decliners, with each falling more than 4 percent.

Tech Stocks

The Hang Seng China Enterprise Index (HSCEI) of mainland companies listed in Hong Kong tumbled to the lowest close since Oct. 10.

China’s economy may have expanded 7.7 percent in the second quarter, according to the median estimate of 35 economists surveyed by Bloomberg. That compares with an 8.1 percent increase in the first quarter and the government’s target for full-year growth of 7.5 percent.

China’s Shanghai Composite Index (SHCOMP) rose 0.5 percent, erasing an earlier loss, as equity valuations near a three-month low overshadowed concern that earnings growth is slowing.

A gauge of technology companies fell 3 percent and led declines among all 10 industry groups in the MSCI Emerging Markets Index. The consumer discretionary index dropped 2.4 percent, the biggest slide since May 23.

Infosys (INFO) Ltd., India’s second-largest software exporter, plunged 8.4 to the lowest level since Sept. 13. Sales in the year ending in March may rise to at least $7.34 billion, Infosys said in a statement today, lower than the $7.55 billion it forecast in April. The BSE India Sensitive Index (SENSEX) lost 1.5 percent.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell one basis point, or 0.01 percentage point, to 366, 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; Jason Webb in London at jwebb25@bloomberg.net

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


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Companies Mentioned

  • EEM
    (iShares MSCI Emerging Markets ETF)
    • $41.11 USD
    • -0.63
    • -1.53%
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