Bloomberg News

Emerging Stocks Retreat for Fourth Day on Commodities, Earnings

August 29, 2012

Emerging-market stocks dropped for a fourth day, sending the benchmark index (VXEEM) to the lowest in three weeks, as falling commodities dragged down producers and Chinese companies posted lower earnings.

The MSCI Emerging Markets Index lost 0.4 percent to 952.61 by 10:59 a.m. in New York. Brazil’s Bovespa stock index sank 2 percent, led by losses for oil company OGX Petroleo & Gas Participacoes SA and JBS SA (JBSS3), the world’s largest beef producer. The index was led lower by a gauge of raw-material shares, which fell for a sixth day, as Jiangxi Copper Co. dropped 5.1 percent. Air China and Evergrande sank at least 2.9 percent on first-half earnings.

The MSCI emerging-market index’s valuation slid to 1.6 times net assets today, a 10 percent discount versus the MSCI World Index of developed-nation shares, the widest gap since January 2009, according to data compiled by Bloomberg. The slide extended even as U.S. gross domestic product climbed at a 1.7 percent annual rate from April through June, up from an initial estimate of 1.5 percent.

“Investors are taking a cautious stance as the threat of a global slowdown hasn’t really disappeared,” said Jonathan Ravelas, the chief market strategist at Manila-based BDO Unibank Inc. “The sentiment for some investors is that it might be better to stay on the sidelines and wait if the U.S. and Europe will announce additional stimulus plans.”

EM ETF Declines

The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF (EEM:US) tracking developing-nation shares, fell 0.6 percent to 39.31. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, slid 0.2 percent.

The Bovespa tumbled 2 percent, the most this month, with OGX, the oil company controlled by billionaire Eike Batista, dropping the most in two months. The shares slumped 9 percent after the company announced the second top management replacement since June. JBS lost 4.9 percent, the most since July 23.

The U.S. GDP report from the Commerce Department released today followed a 2 percent first-quarter pace. The revised data also showed companies invested in new equipment at the weakest pace in almost three years.

Federal Reserve Chairman Ben S. Bernanke may shed light on monetary policy in a speech to central bankers on Aug. 31 in Wyoming, while European Central Bank President Mario Draghi, who pledged to do whatever it takes to preserve the euro, canceled his trip to Wyoming.

The 21 countries in the MSCI emerging market index send about 13 percent of their exports to the U.S. and 30 percent to the European Union on average, data compiled by the World Trade Organization show.

Earnings Drop

Evergrande, China’s biggest developer by sales volume, dropped 3.1 percent after reporting a 21 percent decline in its first-half underlying profit. Air China, the nation’s biggest international carrier, said first-half profit slumped 77 percent. The shares sank 2.9 percent to the lowest level since July 9.

Eurocash tumbled 9.1 percent in Warsaw. CEO Luis Amaral, who owns 51 percent of the Polish company, is selling about 7 million shares, or 5 percent, according to terms of the transaction. Amaral’s sale is aimed at increasing the stock’s free float on the Warsaw Stock Exchange, Jan Domanski, head of investors relations at Eurocash, said in an e-mailed response to questions from Bloomberg News.

Micex, Sensex

Russia’s Micex Index dropped 1 percent, with OAO Severstal, the country’s second largest steel producer by output, losing 1.9 percent. The company said second-quarter earnings before interest, taxes, depreciation and amortization rose 18 percent to $664 million from a quarter earlier, missing the average estimate of 10 analysts surveyed by Bloomberg.

Jaiprakash Associates Ltd. (JPA) tumbled 9.2 percent, the most since September. The Indian conglomerate with businesses from real estate to roads sold $150 million of convertible bonds, the biggest offering by an issuer from the nation this year.

The Shanghai Composite Index (SHCOMP) sank 1 percent to the lowest level since February 2009, while the BSE India Sensitive Index retreated 0.8 percent.

Poland’s zloty weakened 1.8 percent against the dollar, leading declines among emerging-market currencies, amid speculation the central bank may cut interest rates as economic growth slows. The forint depreciated 1.1 percent. Hungarian policy makers unexpectedly reduced borrowing costs yesterday.

The extra yield investors demand to own emerging-market bonds over U.S. Treasuries declined 6 basis points, or 0.06 percentage point to 313, according to JPMorgan Chase & Co.’s EMBI Global Index.

The MSCI Emerging Markets Materials Index dropped 1.5 percent, the most among 10 industry groups, while MSCI’s gauge of energy stocks sank 0.7 percent. Jiangxi Copper, the biggest Chinese producer of the metal, retreated the most in three months.

To contact the reporter on this story: Ian Sayson in Manila at isayson@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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Companies Mentioned

  • EEM
    (iShares MSCI Emerging Markets ETF)
    • $44.75 USD
    • -0.12
    • -0.27%
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