Bloomberg News

Emerging Market Stocks Slump in Longest Streak Since July

November 15, 2012

Emerging-market stocks fell for a sixth day, the longest losing streak since July, on prospects China’s new leadership will put off policy changes needed to reform the economy. Volcan Cia. (VOLCABC1) Minera SAA led declines after MSCI Inc. removed the mining company from its Peru index.

Tencent Holdings Ltd. (700), China’s biggest Internet company, dropped the most in 13 months in Hong Kong as profit missed analysts’ estimates. Gedeon Richter Nyrt., Hungary’s biggest drugmaker, and Taiwan’s Inotera Memories Inc. (3474) slid after MSCI said they will be removed from benchmark indexes. Embotelladora Andina SA (ANDINAB), a Chilean soft-drink bottler, rose after shares were added to the MSCI Chile Index.

The MSCI Emerging Markets Index (MXEF) fell 0.6 percent to 974.33 in New York. The gauge’s losing streak is the longest since a seven-day drop through July 12. The Shanghai Composite Index (SHCOMP) lost 1.2 percent as the official Xinhua News Agency announced Xi Jinping had replaced Hu Jintao as head of the Chinese Communist Party. Israeli Defense Minister Ehud Barak signaled that Israel is ready to escalate its military operations against Gaza after at a missile was fired at Tel Aviv by Palestinian militants.

China’s new leadership is “not as pro-reformist a group as the market would like. Initially, that may have disappointed some people,” Michael Wang, an emerging-markets strategist at Amiya Capital LLP in London, said by phone. “Also the Israeli conflict is heightening geopolitical risk.”

Kospi, Won

Russia’s ruble strengthened for a second day while the Micex Index gained 1 percent. The South Korean won weakened 0.2 percent versus the dollar from a 14-month high amid concerns over $607 billion in automatic tax increases and spending cuts due to be enacted in the U.S. next year. The Kospi (KOSPI) index in South Korea, which sends about 10 percent of its exports to the U.S., slid 1.2 percent to a three-month low.

The BSE India Sensitive Index (SENSEX) sank to a two-week low after the government failed to meet a fundraising target in a sale of mobile-phone airwaves. Benchmark indexes in Hungary and the Czech Republic slid, while gauges in Poland and Turkey rose.

MSCI’s index of developing-nation equities has advanced 6.3 percent this year, surpassing the 6 percent gain by the MSCI World Index of developed countries. The emerging-markets gauge trades at 11.3 times estimated profit, compared with the MSCI World’s 12.9, according to data compiled by Bloomberg.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell 1 basis point, or 0.01 percentage point, to 303 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.

Missed Estimates

Tencent retreated 7 percent in Hong Kong. Third-quarter net income of 3.22 billion yuan ($517 million) missed the 3.33 billion-yuan average estimate in a Bloomberg analyst survey. Of the MSCI Emerging Markets Index companies that reported profit for the period, 55 percent trailed estimates, compared with 58 percent in the previous quarter, data compiled by Bloomberg show.

Naspers Ltd., Africa’s biggest media group and Tencent’s associate, declined 1.7 percent in Johannesburg.

Dongkuk Steel Mill Co. (001230) dropped 5.5 percent in Seoul and Inotera, a memory-chip maker, slid 1.1 percent to a record low after MSCI Inc. announced their removal from indexes. Richter, which will also be excluded, lost 5.5 percent, the most since September 2011, in Budapest.

Volcan Cia., Peru’s largest silver, zinc and lead producer, sank the most since June 6, plunging 12 percent after the index provider removed the company from the country index.

MSCI Decision

Embotelladora Andina rose 1.6 percent, the most since Oct. 18, upon its addition to the MSCI Chile Index. No deletions were made for the country’s benchmark, according to a statement on the MSCI’s website. Brazilian markets were closed for a holiday.

OAO Sberbank, Russia’s biggest lender, gained 1.7 percent, the most in six weeks, after MSCI boosted Sberbank’s weighting.

China Construction Bank Corp., the nation’s second-largest bank, dropped 2.7 percent. Industrial & Commercial Bank of China Ltd., the biggest lender, lost 2 percent.

Non-performing loans at Chinese banks rose for a fourth straight quarter, gaining 22.4 billion yuan in the three months ended Sept. 30, to 478.8 billion yuan, the China Banking Regulatory Commission said today. Bad loans gained at all types of banking institutions, including the largest state-owned lenders, rural banks and foreign banks, the regulator said.

China’s new leadership inherits an economy set to expand this year at the slowest pace since 1999, stymied by lagging growth in the U.S. and European Union. The euro-area economy contracted 0.1 percent in the third quarter, slipping into recession for the second time in four years, a Luxembourg-based statistics office said today.

“The composition of the top leaders indicates a go-slow approach to reforms of the financial markets and the economy and not in an aggressive way as expected by the market,” said Dai Ming, a fund manager at Hengsheng Hongding Asset Management Co. in Shanghai, which manages $190 million. “That’s a bit negative.”

To contact the reporters on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net; Maria Levitov in London at mlevitov@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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