Bloomberg News

Emerging-Market Stocks Post Longest Rout Since August

November 14, 2012

Emerging-market stocks fell for a fifth day, led by resources companies, as concern the U.S. won’t be able to reach a budget-deficit reduction deal overshadowed signs of economic recovery in South Korea.

The MSCI Emerging Markets Index (MXEF) retreated 0.2 percent to 980.62 in New York, posting the longest stretch of declines since Aug. 30. Fibria Celulose SA (FIBR3), the world’s largest pulp producer, sank 5.8 percent in Sao Paulo and Tecnisa SA (TCSA3), a Brazilian homebuilder, slumped the most on record as profit trailed estimates. Siam Cement Pcl (SCC) declined to the lowest level this month in Bangkok.

The developing nations’ gauge erased earlier gains as re- elected President Barack Obama is negotiating to reach a deficit-reduction deal with Congress to avert a $607 billion fiscal cliff. Countries in the MSCI gauge send about 17 percent of their exports to the U.S. on average, according to the World Trade Organization. Economic growth will “bounce back” in Asia’s fourth-largest economy next year, Bank of Korea Governor Kim Choong Soo said at a forum in Seoul today.

“The fiscal cliff story is the overwhelming factor to the pullback we’re seeing in emerging market equities,” Geoffrey Dennis, the global emerging-markets strategist at Citigroup Inc. in New York, said by phone. “Most investors probably believe it will be resolved, but if it isn’t, the U.S. falls into a recession.”

The iShares MSCI Emerging Markets Index exchange-traded fund (EEM:US), the ETF tracking developing-nation shares, lost 1.5 percent. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index (VXEEM), a measure of options prices on the fund and expectations of price swings, increased 1.6 percent.

Material Stocks

The sub-index of material stocks led declines among 10 industry groups in the MSCI Emerging Markets Index, sinking 1.4 percent to a two-month low. The measure of developing-nation equities has advanced 7 percent this year, beating the 6.3 percent gain by the MSCI World Index (MXWO) of developed-country equities. The emerging-markets gauge trades at 11.3 times estimated profit, compared with the MSCI World’s multiple of 12.9, data compiled by Bloomberg show.

Siam Cement, Thailand’s sixth-largest company by market value with businesses ranging from cement and petrochemicals to paper and building materials, lost 2.3 percent. Fibria retreated the most since Sept. 26. Tecnisa plunged 16 percent after the Sao Paulo-based homebuilder reported third-quarter net income shrank to 16.7 million reais ($8.1 million), below the median estimate of 20.4 million reais.

Brazil’s Bovespa Index retreated 2.1 percent, the most since Sept. 25. Turkey’s ISE National 100 index lost 1 percent as Russia’s Micex slid to the lowest level since July 25.

Won Strengthens

OAO Surgutneftegas, a Russian oil producer, dropped 2.1 percent, sinking to the lowest level since June.

Mol Nyrt. (MOL), Hungary’s largest refiner, fell 0.7 percent after Chief Financial Officer Jozsef Simola said on a conference call that he expects “average” downstream profitability in the last three months of 2012.

The won strengthened 0.4 percent to a 14-month high of 1,085.05 per dollar, after a government report showed that South Korea’s unemployment rate fell to 3 percent last month, the lowest level since February 2008.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell 1 basis point, or 0.01 percentage point, to 301 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.

Crude oil for December delivery advanced 1.1 percent a barrel on the New York Mercantile Exchange, the highest settlement since Nov. 6, after Israel carried out a series of airstrikes in the Gaza Strip that killed the leader of Hamas’s militant wing, bolstering concern that unrest in the Middle East will intensify and affect supplies. Prices are down 13 percent this year

‘New Leadership’

The Hang Seng China Enterprises Index rallied 1.7 percent as the new Communist Central Committee was announced. The Shanghai Composite Index added 0.4 percent as Taiwan’s Taiex Index rose 0.3 percent. Gauges in Poland, the Czech Republic and Hungary also gained.

China’s Vice President Xi Jinping and Vice Premier Li Keqiang were re-appointed to the Communist Party’s central committee today, while members of the Politburo Standing Committee, the top decision-making body, will be elected tomorrow in Beijing. The yuan rose to a 19-year high.

“People are looking forward for economic reform in the future with the new leadership,” Ang Kok Heng, who manages the equivalent of $424 million as chief investment officer at Phillip Capital Management Sdn., said by phone in Kuala Lumpur.

China Construction Bank Corp. (939) advanced 3.2 percent in Hong Kong after Chairman Wang Hongzhang said they can keep bad loans under control, according to Financial News. Industrial and Commercial Bank of China Ltd., the world’s largest lender by market value, surged 3 percent from a four-week low yesterday.

To contact the reporters on this story: Tal Barak Harif in New York at tbarak@bloomberg.net; Leon Lazaroff in New York at llazaroff@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)
    • $38.84 USD
    • 0.27
    • 0.7%
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