Emerging-market stocks fell, extending the benchmark’s biggest weekly decline since May, as escalating Middle East tensions and concern over the U.S. economy cut demand for riskier assets.
The MSCI Emerging Markets Index (MXEF) slid for a seventh day, losing 0.5 percent to 969.82 at the close of trading in New York, the lowest level since Sept. 7. The index declined 2.1 percent this week. Brazilian utility Centrais Eletricas Brasileiras SA (ELET6) had the biggest drop on the gauge, slumping to the lowest close since 2003 after quarterly earnings trailed estimates. Samsung Electronics Co. (005930) tumbled 1.8 percent, leading a retreat in emerging-market technology stocks.
The index pared losses after John Boehner, speaker of the U.S. House of Representatives, said talks with President Barack Obama over the so-called fiscal cliff were “constructive.” Industrial production in the nation unexpectedly fell 0.4 percent in October, data today showed. Palestinian missiles landed in areas around Jerusalem and Tel Aviv, while Israel stepped up its bombing on Gaza, buoying oil prices on speculation supply will be interrupted.
“The risk-off mood continues to prevail,” Benoit Anne, head of emerging-market strategy at Societe Generale SA in London, said by e-mail. “I don’t think we are going to see a turnaround in the near term.”
The iShares MSCI Emerging Markets Index (EEM:US) exchange-traded fund, the ETF tracking developing-nation shares, gained 0.3 percent, paring its weekly loss to 1.4 percent. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, dropped 2.8 percent.
Brazil’s Bovespa Index retreated 1.6 percent, led by power generator Eletrobras, as Centrais Brasileiras is known, which plunged 12 percent. Homebuilder PDG Realty SA Empreendimentos e Participacoes (PDGR3) dropped 7.3 percent to the lowest close since March 2009 after canceling the release of new projects guidance for 2012.
The Bovespa fell 3.4 percent in the week. Petroleo Brasileiro SA (PETR4), the country’s state-controlled oil producer, dropped 3.9 percent to the lowest close since July. Chief Financial Officer Almir Barbassa told reporters in New York yesterday that the company may have to sell more assets should it not be allowed by the government to raise fuel prices.
Russia’s Micex Index (VTBMICX) fell 0.2 percent, extending its second weekly drop to 1.3 percent. OAO Mechel (MTLR), the country’s largest producer of coal for steelmakers, fell 2.2 percent while OAO Uralkali, the world’s largest potash producer, sank 2.7 percent.
Latam Airlines SA (LAN), the world’s most valuable carrier, tumbled 1.8 percent, leading declines in Chile’s benchmark Ipsa index and posting its longest streak of losses in six months. The airline’s chief executive officer said it is considering selling new stock to help reduce debt and regain an investment- grade credit rating.
The Russian ruble weakened 0.2 percent. South Korea’s won fell 0.5 percent against the dollar, the most in almost two months, while the Indian rupee and the Brazilian real fell 0.9 percent, leading declines among emerging-market currencies. Israel’s shekel added 0.2 percent as Jerusalem and Tel Aviv sounded air-raid sirens and Israel extended its bombing of the Gaza Strip.
The extra yield investors demand to own emerging-market debt over U.S. Treasuries was unchanged at 306 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.
The Shanghai Composite Index (SHCOMP) lost the most among major Asian markets this week on concern the nation’s new leadership won’t accelerate economic reforms. The economy of the euro area contracted 0.1 percent in the third quarter, slipping into recession for the second time in four years, a Luxembourg-based statistics office said yesterday.
The Shanghai Composite slid 0.8 percent today, paring earlier losses of as much as 1.4 percent, after the government announced a dividend-tax cut for long-term investors.
The composition of the Communist Party’s top leadership body announced in China yesterday hurt expectations for economic reform, Adam Wolfe, senior economist for Asia at Roubini Global Economics in London, wrote in an e-mail. Wang Qishan, who oversaw the nation’s financial sector amid looser government controls on interest rates and the yuan, was named to a post that signaled he won’t directly supervise the economy.
Zhang Dejiang, vice premier in charge of industries including telecommunications and energy, was also named yesterday to the paramount Politburo Standing Committee. Zhang said in a November 2010 speech that state-owned enterprises must strive to be “stronger, more excellent and bigger,” the Xinhua News Agency reported.
“Hopes for economic reform took a big hit,” Roubini Global’s Wolfe wrote yesterday. “Wang has a track record of implementing market-oriented reforms in the past. He would have been expected to take on the state-owned enterprises’ monopolies and ease financial repression in the banking sector.”
China will cut its stock dividend tax by half for individuals who hold shares for at least one year as part of efforts to encourage long-term investment and reduce speculative trading. The tax rate will be lowered to 5 percent effective Jan. 1, the Ministry of Finance said on its website today.
South Korea’s Kospi Index dropped 0.5 percent, while Taiwan’s Taiex index lost 0.2 percent. The BSE India Sensitive Index fell 0.9 percent, extending a six-day decline, the longest slump in almost a year.
Samsung Electronics slid the most in three weeks, while SK Hynix Inc. sank 4.6 percent, making a gauge of technology stocks the biggest decliner among 10 industries in the MSCI emerging- market index. Dell Inc. forecast fiscal fourth-quarter revenue will be $14 billion to $14.4 billion, lower than the $14.5 billion average estimate of analysts surveyed by Bloomberg.
Applied Materials Inc. predicted sales in the fiscal first quarter will decline as much as 15 percent from the prior quarter. Haier Electronics (1169) sank 6.4 percent, its biggest loss since March 28.
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