Bloomberg News

Emerging Stocks Fall to 7-Week Low on China, Earnings

July 25, 2012

Emerging-market stocks declined, sending the benchmark index to the lowest level in a month, on concern a global economic slowdown will erode developing nations’ earnings.

The MSCI Emerging Markets Index (MXEF) dropped for a fourth day, losing 0.4 percent to 905.94 at 11:06 a.m. in New York. Technology companies, which make up 13 percent of the gauge, slid 1.4 percent, headed for the lowest level since Jan. 16, after Apple Inc. (AAPL:US) reported lower-than-estimated earnings. Brazil’s Bovespa (IBOV) stock index also fell for a fourth day with port developer LLX Logistica SA (LLXL3) and iron-ore producer Vale SA (VALE3), the heaviest-weighted stocks on the gauge, declining.

Earnings for emerging-market companies have trailed forecasts by 4.6 percent on average since July 1, according to data compiled by Bloomberg. Demand for new U.S. homes unexpectedly dropped in June from a two-year high, indicating the country’s housing recovery will be uneven. European Central Bank council member Ewald Nowotny suggested the bank may boost the region’s bailout fund to curb the worsening European debt crisis.

“A slowdown in emerging markets has meant that corporate profitability is being hit and remains vulnerable with little visibility ahead,” Kunal Vora, an analyst at FM Capital Partners Ltd. in London, wrote in a note to clients. “All in all, clouds of a global recession seem to be getting darker.”

MSCI’s index of developing nations, which has lost 1.1 percent this year, trades at a multiple of 10 times estimated earnings, compared with 12.1 for the MSCI World Index of developed nations, which has advanced 1.5 percent in 2012, according to data compiled by Bloomberg.

EM ETF Rebounds

The IShares MSCI Emerging Markets Index exchange-traded fund, the ETF (EEM:US) tracking developing-nation shares, rose for the first time in four day, gaining 0.3 percent to $37.53. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, was little changed at 29.21.

Brazil’s Bovespa Index dropped 0.4 percent to the lowest in nine months as Vale slumped 2 percent and LLX slid 2.1 percent. Russia’s Micex Index was little changed, with OAO Sberbank, the largest lender with the third-biggest weight on the benchmark Russian gauge, gaining 2.1 percent.

Home Purchases decreased to a 350,000 annual rate, down 8.4 percent from the prior month and the weakest since January, the Commerce Department reported today in Washington. The median estimate in a Bloomberg News survey of 74 economists was 372,000.

The Shanghai Composite Index (SHCOMP) slid 0.5 percent to the lowest level since March 2009. Achieving a so-called “soft landing” for China is a key challenge, the International Monetary Fund said in an annual review. It repeated an assessment that the yuan is “moderately” undervalued, which China disputed.

Banking License

The ECB’s Nowotny said there are arguments in favor of giving Europe’s rescue fund a banking license, reviving the debate on bolstering its firepower as leaders face the prospect of a full-scale Spanish bailout.

The rand appreciated 0.6 percent against the dollar, gaining for the first time in five days.

Apple sank 4.8 percent, the most in nine months, after reporting iPhone sales that missed analysts’ projections. The company sold 26 million iPhones in the fiscal third quarter, shy of the 28.4 million predicted by analysts surveyed by Bloomberg. That caused Apple to miss analysts’ quarterly sales and profit estimates for the second time since 2003.

Technology Stocks

Hon Hai Precision Industry Co. (2317), which assembles Apple products, dropped 4.3 percent in Taipei, the biggest retreat since April 30.

Gome reported an 88 percent profit decline in the first quarter as China stopped subsidizing some home appliance purchases. LG Electronics Inc. (066570), the world’s fourth-largest mobile-phone maker, fell 2.1 percent in Seoul after it reported profit that missed analysts’ estimates.

South Korea’s Kospi (KOSPI) sank the most among emerging-market gauges to the lowest level since Oct. 10. Bank of Korea Governor Kim Choong Soo said the nation risks failing to meet a growth estimate for 2012 that the central bank already cut two weeks ago because of Europe’s debt crisis. The won depreciated 0.4 percent against the dollar.

The BSE India Sensitive (SENSEX) Index lost 0.4 percent. Jindal Steel & Power Ltd., India’s second-biggest maker of the alloy by market value, fell 4.3 percent to its lowest close in three years, after first-quarter profit unexpectedly declined because of an impairment charge on an investment in Bolivia.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell three basis points, or 0.03 percentage point, to 367, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporters on this story: Jason Webb in London at jwebb25@bloomberg.net

To contact the reporter on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net


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Companies Mentioned

  • AAPL
    (Apple Inc)
    • $100.96 USD
    • -0.83
    • -0.82%
  • EEM
    (iShares MSCI Emerging Markets ETF)
    • $43.46 USD
    • -0.33
    • -0.76%
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