Bloomberg News

Emerging ETF Sinks Most Since July on Declining Earnings

October 23, 2012

Emerging ETF Sinks Most Since July as Slowdown Erodes Earnings

OAO Lukoil, Russia’s second-largest oil company, slipped 2.3 percent. Photographer: Andrey Rudakov/Bloomberg

The exchange-traded fund (EEM:US) tracking emerging-market shares slipped the most since July in New York and stocks slumped on concern the global slowdown is crimping company earnings and as commodities erased this year’s gains.

The iShares MSCI Emerging Markets Index ETF, which tracks companies including Korea’s Posco and Moscow-based OAO Gazprom, sank 2.1 percent to $41.04 at the close of trading in New York, the biggest one-day slide since July 23. The MSCI Emerging Markets Index (MXEF) lost 1 percent to 996.82, the steepest drop since Oct. 8.

About 63 percent of companies in the MSCI gauge that reported quarterly earnings have trailed analyst estimates, according to data compiled by Bloomberg. Posco, the third- biggest Asian steelmaker by output, fell to the lowest level since March 2009 after reporting earnings for the third quarter that missed estimates and cutting its 2012 sales forecast for the third time this year. Itau Unibanco Holding SA (ITUB4), Latin America’s largest bank by market value, slipped to the lowest since July as profit dropped in the third quarter.

“Concerns about weaker earnings keep the markets down today,” Maarten-Jan Bakkum, an emerging-market strategist at ING Investment Management in The Hague, said by e-mail. There are questions about “the longer-term growth outlook for China, the earnings momentum and a deteriorated macro policy mix in several key emerging economies,” he said.

The Standard & Poor’s GSCI Index tracking prices for 24 commodities sank for a third day, losing 1.4 percent to 639.30, while crude oil for December delivery declined $1.98 to $86.67 a barrel in New York, the lowest settlement since July 12. Russia is the world’s largest energy exporter, while metals and other commodities account for 45 percent of South Africa’s exports.

Rising Volatility

The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, gained 10 percent.

Brazil’s Bovespa Index slipped 1.7 percent in Sao Paulo, while Russia’s Micex Index sank 1.3 percent, the most in four weeks. Benchmark gauges in Poland and the Czech Republic lost at least 1.7 percent. China’s Shanghai Composite Index (SHCOMP) slid 0.9 percent, the most among Asian benchmark indexes. South Korea’s Kospi index dropped 0.8 percent. Stock markets in Hungary, Hong Kong and Thailand are closed for holidays.

China’s economy expanded 7.4 percent in the third quarter from a year earlier, compared with 7.6 percent in the April-June period and the seventh quarter of slowing growth. The International Monetary Fund this month cut its forecast for global growth in 2012 to 3.3 percent from a previous estimate of 3.5 percent.

Rand Weakens

South Africa’s rand weakened 1.4 percent against the dollar. The South Korean won gained 0.1 percent, to the strongest in more than a year.

Poland’s KGHM Polska Miedz SA (KGH), the copper producer with the biggest European mine output, lost 3.4 percent. OAO Novolipetsk Steel, a Russian steelmaker, retreated to the lowest level since Sept. 7. OAO Lukoil, Russia’s second-largest oil company, slipped 2.3 percent.

TNK-BP Holding plunged 17 percent to a record low on concern the company will curb dividend payouts after it is acquired by state-backed OAO Rosneft. OAO Mechel, Russia’s largest producer of coal for steelmaking, lost 3.9 percent after it temporarily suspended mining at its Bluestone complex in the U.S.

Brazil’s iron-ore producer Vale SA (VALE3) and state-controlled oil company Petroleo Brasileiro SA (PETR4) retreated at least 1.7 percent.

Shanxi Coking

The MSCI developing nations measure has climbed 8.8 percent this year, trailing a 9.9 percent increase in the MSCI World Index of developed countries. The emerging-market gauge trades for 11.5 times estimated earnings, compared with the MSCI World’s 13.1 times, according to data compiled by Bloomberg.

Posco (005490) dropped 2.1 percent, to the lowest level since March 2009. Parent net income was 744 billion won ($675 million) in the three months ended Sept. 30, less than the 753.6 billion won average of 17 analyst estimates compiled by Bloomberg.

Itau Unibanco declined 3.2 percent to the lowest level since July after posting a 13 percent drop in profit in the third quarter.

Shanxi Coking Co., the largest publicly traded coking coal producer in China, slid 1.1 percent after third-quarter profit dropped 74 percent from a year earlier.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose four basis points, or 0.04 percentage point, to 280 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporters on this story: Maria Levitov in London at mlevitov@bloomberg.net; Julia Leite in New York at Jleite3@bloomberg.net

To contact the editors responsible for this story: Emma O’Brien at eobrien6@bloomberg.net; Gavin Serkin at gserkin@bloomberg.net


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Companies Mentioned

  • EEM
    (iShares MSCI Emerging Markets ETF)
    • $45.58 USD
    • 0.23
    • 0.5%
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