Emerging-market stocks slid the most in three months, led by industrial companies, after GS Engineering & Construction Corp. (006360) said profit tumbled and U.S. elections paved the way for a showdown over the nation’s budget deficit.
GS Engineering slumped to the lowest level in more than three years in Seoul and set a gauge of industrial stocks for its biggest drop since July. Brazilian homebuilder MRV Engenharia & Participacoes SA fell the most since Aug. 2 while Russia’s Micex Index (INDEXCF) sank to a three-month low, led by OAO Sberbank, the country’s biggest lender.
The MSCI Emerging Markets Index (MXEF) of 818 developing-nation stocks declined 1.2 percent to 995.31 at the close of trading in New York, its biggest drop since July 23. Re-elected for a second term on Nov. 6, President Barack Obama now faces negotiations to avoid the so-called fiscal cliff, more than $600 billion of tax increases and spending cuts that are set to kick in automatically in January.
“Most negativity in emerging markets is coming from developed markets,” Lars Christensen, chief emerging-markets analyst at Danske Bank A/S said by phone from Copenhagen. “There are concerns about the fiscal cliff situation in the U.S.”
The iShares MSCI Emerging Markets Index (EEM:US) exchange-traded fund, the ETF tracking developing-nation shares, slid 1.3 percent to the lowest level since Sept. 12. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, rose 5.9 percent.
The Congressional Budget Office has said the U.S. economy would slow by as much as 0.5 percent next year should Congress fail to keep the increases from taking effect. Countries in the MSCI index send about 17 percent of their exports to the U.S. on average, according to the World Trade Organization.
The European Commission, the European Union’s executive body, said yesterday that it expects the euro region to experience near-stagnation next year as its sovereign debt crisis continues.
The 30-stock Micex gauge in Russia, which counts Europe as its biggest trading partner, slid 1.1 percent to the lowest close since Aug. 2, as Sberbank sank 4.1 percent on its third day of declines. The Kospi index fell 1.2 percent, the most since Oct. 26. India’s Sensex snapped a six-day rally and the rupee slipped for the first time in three days against the dollar. Brazil’s Bovespa index lost 1.7 percent as power company Centrais Eletricas Brasileiras SA posted its longest losing streak in three months.
China’s Shanghai Composite Index (SHCOMP) slid a fourth day, the longest stretch of losses since June, as the Communist Party started a meeting to decide its new leaders. The Hang Seng China Enterprises Index of mainland companies tumbled 2.6 percent, the steepest loss since July 23. Taiwan’s Taiex index slipped 0.6 percent.
The South African rand was the biggest decliner against the dollar among emerging market currencies tracked by Bloomberg. Mining output and manufacturing production slumped in September, raising concern about slowing growth in Africa’s biggest economy. China’s yuan touched the top end of its permitted trading range for a fourth straight day as the party congress began.
Chinese Vice President Xi Jinping will probably replace Hu Jintao as general secretary of the party that’s ruled China since 1949. Hu told delegates that China must double per-capita income by 2020, setting a target for the incoming generation of leaders to be unveiled at the close of the congress. He also called for a deeper financial overhaul and more local-level democracy.
Chinese data including consumer prices and industrial output will be released tomorrow.
Equity trading volumes were higher than average in Brazil, Mexico, Seoul and Taipei. About 29 percent more shares of Kospi gauge companies changed hands versus the 30-day average, according to data compiled by Bloomberg. Volumes were 22 percent higher for the Taiex, and 5.6 percent higher than average in Moscow. Volumes in Brazil’s Bovespa were 6.6 percent higher than the 30-day average. Mexico’s IPC index fell 0.4 percent on volumes 28 percent higher than average.
“The market focus is coming back to the fiscal cliff now and the issue is still there,” said Wu Kan, a fund manager at Dazhong Insurance Co. in Shanghai, which oversees $285 million. “If the U.S. slips back into a recession, it’ll deal a heavy blow to exports from emerging nations.”
A sub-index of industrial companies dropped 1.6 percent, leading declines in all 10 industry groups in the MSCI Emerging Markets measure. The developing-nation gauge has climbed 8.6 percent this year, compared with an 8 percent increase in the MSCI World Index. Shares in the emerging-markets index trade at 11.4 times estimated earnings, compared with the MSCI World’s multiple of 13.1 times, according to data compiled by Bloomberg.
About 57 percent of MSCI Emerging Markets Index companies have reported quarterly profit that missed analyst estimates since the end of September, according to data on 391 corporate results compiled by Bloomberg.
GS Engineering sank 11 percent to its lowest close since March 2009. The company said third-quarter operating profit tumbled 74 percent from a year earlier.
State-controlled Banco do Brasil SA (BBAS3) fell 4.5 percent in Sao Paulo. The bank reported third-quarter adjusted net income of 2.74 billion reais, below the 2.89 billion recorded a year earlier.
MRV dropped 4.3 percent, before the release of its third quarter results. The company’s adjusted net income was 151 million reais, below the average estimate of 159.5 million among six analysts, according to data compiled by Bloomberg.
NCsoft Corp. (036570), an online-game maker, tumbled 13 percent in Seoul, the most since November 2008, after brokerages cut price targets. Hyundai Securities Co. and Woori Investment & Securities Co. lowered their share-price estimates after the company’s third-quarter profit missed analysts’ forecasts.
Netia SA (NET), a Polish fixed-line telecommunications provider, plunged 5.4 percent in Warsaw, the biggest slide in 14 months, after earnings missed estimates. The telecommunications provider reported third-quarter profit of 10 million zloty ($3.1 million), lower than 11.1 million zloty estimated by analysts.
Eletrobras, as Centrais Eletricas is known, fell 4.3 percent on its fourth day of decline. MMX Mineracao & Metalicos SA lost 3.2 percent after rising as much as 3.9 percent. The miner’s third-quarter loss narrowed to 100.6 million reais ($49.3 million) from a 243.2 million reais loss a year earlier.
Greentown China Holdings Ltd. (3900), a Hong Kong-based developer, dropped 2.8 percent, sliding for a second day. Warburg Pincus LLC sold 45 million shares in the company for HK$9.36 apiece, the top end of a marketed price range, according to a person with knowledge of the matter.
Tata Motors Ltd. (TTMT) advanced 5.4 percent in Mumbai to the highest since May 15 after its Jaguar Land Rover Plc unit boosted sales in emerging markets and demand for the Evoque compact sport utility vehicle strengthened.
The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose two basis points, or 0.02 percentage point, to 295, according to JPMorgan Chase & Co.’s EMBI Global Index.
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