Bloomberg News

Emerging ETF Sinks to 2-Week Low as Brazil Equities Fall

November 07, 2012

The exchange-traded fund tracking developing-nation shares sank the most in two weeks as equity indexes from Hungary to Brazil fell along with U.S. stocks and oil. BYD Co. (1211), the Chinese carmaker partly owned by Warren Buffett’s Berkshire Hathaway Inc., surged 11 percent.

The iShares MSCI Emerging Markets Index (EEM:US) ETF tumbled 1.6 percent as investors assessed U.S. President Barack Obama’s challenge to address a so-called fiscal cliff of more than $600 billion in tax increases and spending cuts after winning re- election and the Greek debt crisis on emerging markets. BYD led gains in industrial and technology companies in the MSCI Emerging Markets Index (INDEXCF), which was little changed.

“We’re seeing the very tough reality check after the party,” Chris Weafer, chief strategist at Sberbank Investment Research, the investment banking arm of Russia’s largest lender, said in an interview at Bloomberg’s headquarters in New York. “With the election over people are looking to the tough schedule ahead for the U.S. coupled with uncertainty surrounding Greece and the euro zone.”

The MSCI Emerging Markets Index added 0.1 percent to 1,007.45 at the close in New York, paring an earlier advance of as much as 0.8 percent. Benchmark indexes in Hungary, Russia, Brazil Colombia and Mexico fell more than 1 percent.

Brazilian oil producer OGX Petroleo e Gas Participacoes SA, slid the most since Oct. 26 as crude sank the most this year.

‘Good News’

Obama’s re-election supported emerging-market stock gains earlier in the day, on prospects he is more likely than challenger Mitt Romney to maintain asset purchases designed to bolster the U.S. economy, said Michael Ganske, head of emerging- market research at Commerzbank AG in London. Countries in the MSCI gauge send about 17 percent of their exports to the U.S. on average, according to the World Trade Organization.

The MSCI Emerging Markets Index had surged 108 percent during the Fed’s first round of bond purchases, known as quantitative easing. The gauge has climbed 2.6 percent since the Fed announced a third round on Sept. 13. The MSCI index’s 30-day volatility, a gauge of price swings, dropped to 8.2, the lowest closing level since January 2006.

“A clear-cut win for Obama is good news,” Ganske said by e-mail. “The political agenda of Romney had some question marks, such as naming China a currency manipulator and the continuation of QE3.”

Romney had pledged to label China a currency manipulator over its management of the yuan and said he disagreed with the Fed’s measures to stimulate the economy. He also vowed to replace Fed Chairman Ben S. Bernanke at the end of his term in January 2014.

All of the top five advancers in the MSCI developing-nation gauge were Chinese stocks.

‘Reality Check’

Obama’s victory means the value of the yuan won’t escalate into a major trade issue that would slow the global economy, Arjuna Mahendran, the Singapore-based head of Asia investment strategy at HSBC Private Bank, which oversees $409 billion, said in a phone interview today.

The Chicago Board Options Exchange Emerging Markets ETF Volatility Index (VXEEM), a measure of options prices on the iShares ETF and expectations of price swings, gained 3.2 percent.

Obama will need to address the so-called fiscal cliff of tax increases and spending cuts that take effect in 2013 unless Congress can reach a budget compromise.

Russia, Brazil

Russia’s Micex Index slumped 1.6 percent as oil slid 4.8 percent in New York. Brazil’s Bovespa Index fell 1.6 percent as OGX sank 4.4 percent and state-owned Petroleo Brasileiro SA (PETR4) slumped 2.3 percent.

Hungary’s BUX Index lost 1.6 percent, the most in three weeks. Mexico’s IPC Index retreated 1.7 percent, the biggest decline since June 1. Colombia’s IGBC gauge sank for a seventh day, dropping 2.5 percent, the longest stretch of slumps since May 17.

The Hang Seng China Enterprises Index (HSCEI) of mainland companies climbed 0.7 percent, snapping a two-day decline, before the Chinese Communist Party’s leadership congress that starts tomorrow.

The MSCI Emerging Markets Index (MXEF) has advanced 9.9 percent this year, compared to a 9 percent increase by the MSCI World Index. (MXWO) The emerging-markets index trades at 11.6 times estimated earnings, compared with the MSCI World’s multiple of 13.2, according to data compiled by Bloomberg.

South Korea’s won gained 0.5 percent per dollar to the strongest level in almost 14 months. The Czech Koruna declined 0.9 percent against the dollar.

Extra Yield

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose seven basis points, or 0.07 percentage point, to 291, according to JPMorgan Chase & Co.’s EMBI Global Index.

Brazilian miner MMX Mineracao e Metalicos SA dropped 5.1 percent, the most since July 20 as the Standard & Poor’s GSCI index of 24 raw materials declined 2.4 percent.

Oil slumped below $85 in New York as re-elected U.S. President Barack Obama has to forge a deal with Congress to avoid more than $600 billion in tax increases and spending cuts, and Greece prepared to vote on austerity measures.

Largan Precision Co. (3008) jumped 7 percent after Macquarie Group Ltd. upgraded the stock to an equivalent of buy from neutral. A gauge of information-technology companies in the MSCI Emerging Markets Index climbed for an eighth day, the longest winning streak since January.

BYD surged 11 percent in Hong Kong, trading above its 200- day moving average for the first time since May 4.

China Mobile Limited (941) rose 2.5 percent, the biggest gain since June 6. The company plans to start 4G mobile data service in Hong Kong by the end of the year, the Standard in Hong Kong reported, without saying how it obtained the information.

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: Gavin Serkin at gserkin@bloomberg.net; Emma O’Brien at eobrien6@bloomberg.net


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Companies Mentioned

  • EEM
    (iShares MSCI Emerging Markets ETF)
    • $44.82 USD
    • -0.27
    • -0.6%
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