Bloomberg News

Emerging Stocks Drop From Eight-Month High on U.S. Budget Talks

December 20, 2012

Most emerging-market stocks fell, spurring the benchmark index’s retreat from an eight-month high, as the U.S. budget impasse weighed on the outlook for developing- nation exports and dragged down technology stocks.

Taiwan Semiconductor Manufacturing Co. Ltd. (2330) slid to a three-week low, while NHN Corp. (035420), South Korea’s biggest Internet search-engine operator, fell to a 10-month low. Adani Enterprises Ltd. (ADE), India’s biggest coal importer, tumbled 7.1 percent in Mumbai ahead of a share sale by the company’s founders. LLX Logistica SA led gains in Sao Paulo after reaching a deal to lease space at its Acu port to Vallourec SA.

The MSCI Emerging Markets Index was little changed at 1,052.68 in New York, as 405 stocks dropped and 360 gained, and has risen 15 percent this year. While U.S. stocks rose as House Speaker John Boehner said he expects to keep working on a budget plan with President Barack Obama, concern that the Dec. 31 deadline is approaching as lawmakers leave Washington for the Christmas holiday sent developing-nation shares lower.

“The fiscal cliff is front and center and will continue to remain a principle driver until a deal is secure,” Aryam Vazquez, global emerging markets economist at Wells Fargo & Co. in New York, said by phone. “You still have these concerns over the fiscal cliff, and the market is practically ignoring other issues.”

The 21 nations in MSCI’s developing-nations gauge send about 17 percent of their exports to the U.S. on average, data compiled by the World Trade Organization show.

‘Remain Cautious’

U.S. lawmakers are seeking to avert more than $600 billion in tax increases and spending cuts set to start on Jan. 1. The House of Representatives will vote today on Speaker John Boehner’s Plan B -- tax increases on annual income over $1 million -- and a separate spending-cut bill. The White House has said it would veto the plan, and Boehner said he expects to keep working on a budget deal with President Barack Obama, sending the Standard and Poor’s 500 Index up 0.5 percent.

“The U.S. budget negotiations are on top of everybody’s mind and that will have a bearing on the near-term outlook for equities,” Aneesh Srivastava, who oversees $470 million as the chief investment officer at IDBI Federal Life Insurance Co. in Mumbai, said by phone. “A deal would definitely be reached. But until such time, investors are going to remain cautious.”

The iShares MSCI Emerging Markets Index (MXEF) exchange-traded fund, the ETF tracking developing-nation shares, added 0.6 percent to $43.77. The ETF has added 15 percent this year. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, slipped 1.2 percent to 20.03.

Brazil’s Bovespa (IBOV) Index rose 0.5 percent. LLX Logistica, the Brazilian port operator headed by billionaire Eike Batista, rose 5.4 percent after agreeing to lease space at its Acu complex to the local unit of French steel-pipe-maker Vallourec.

Colombia’s IGBC General Index (IGBC) dropped 0.5 percent, the most since Nov. 26. Oil company Petrominerales Ltd. dropped 1.3 percent after announcing a $36.9 million acquisition to expand into Brazil amid declining production.

Russia, Turkey

Russia’s Micex Index closed at a two-month high as OAO Novatek, the non-state gas producer, increased 0.5 percent. Russia’s Energy, Finance and Natural Resources ministries and the Federal Antimonopoly Service support Novatek’s bid to end Gazprom’s liquefied natural gas export monopoly, Kommersant said, citing an unidentified person in the government.

Alarko Holding (ALARK), a Turkish diversified group of companies, rose 3.9 percent, the highest close since April 2006. The company said yesterday its unit Alsim Alarko won a $633 million contract in Kazakhstan.

The Czech Republic’s PX Index fell 0.7 percent, snapping the longest rally since 2009. Stocks in Poland’s benchmark gauge declined 0.5 percent after four days of gains.

The BSE India Sensitive Index slid from a two-week high amid concern gains may have outpaced the outlook for company earnings. The rupee weakened against the dollar. Adani posted the steepest decline in the MSCI developing-nation gauge.

Technology Shares

The MSCI Emerging Markets /Information Technology Index fell 0.8 percent, the most among the 10 industry groups in the emerging-markets gauge. The broader measure is beating the 14 percent increase in the MSCI World Index (MXWO) of developed countries. The emerging-markets gauge trades at 12.1 times estimated earnings, compared with the MSCI World’s 13.9, according to data compiled by Bloomberg.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries was narrowed 1 basis point, or 0.01 percentage point, to 263 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.

Gold futures fell to the lowest since August after a report showed the U.S. economy grew more than forecast last quarter, damping expectations that the Federal Reserve will expand monetary stimulus. Initial jobless claims in the U.S. rose for the first time in five weeks.

Election Victory

Taiwan’s Taiex Index (TWSE) slid 1.1 percent, leading declines among major emerging markets. Taiwan Semiconductor, which has the biggest weighting on the Taiex, retreated 1.3 percent in Taipei.

South Korea’s Kospi index rose 0.3 percent after Park Geun Hye became the first woman to lead the nation. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong dropped 0.3 percent while Indonesia’s Jakarta Composite Index (JCI) slumped 0.5 percent to its lowest level since Oct. 3.

Dongbu Insurance Co. Ltd. (005830) surged 6.3 percent in Seoul, its biggest gain since September 2011 on speculation the industry will benefit from the election of the ruling party’s Park as president. Park beat rival Moon Jae In, whose policies may have dragged on insurers’ earnings.

Hyundai Engineering & Construction Co. Ltd., South Korea’s largest builder, jumped 4 percent after HSBC Holdings Plc said the government is likely to support the economy through the expansion of public housing.

“While some individual sectors could get a short-term boost from the elections, the overall reaction is muted,” Chung Yun Sik, chief investment officer for equities at ING Investment Management Korea Ltd., which oversees about $20 billion, said by phone today. “There are ongoing concerns over U.S. budget negotiations and the Kospi at the 2,000 level is prompting some investors to take profits.”

Regulation Speculation

The Shanghai Composite Index advanced 0.3 percent to its highest close since Aug. 10, as brokerages rallied on speculation financial industry reforms and economic growth will boost profit.

NCsoft Corp. (036570) led South Korean gamemaker shares lower in Seoul on speculation the government will continue to regulate the industry. NCsoft, a producer of online games, slumped 6.1 percent, its steepest drop since Dec. 5. NHN declined 6.3 percent to the lowest price since Feb. 20.

“Investors are betting the current government’s regulatory pressure on the game industry will continue after Park’s victory,” Choi Hoon, an analyst at KB Investment & Securities Co., said by phone today.

To contact the reporters on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net; Victoria Stilwell in New York at vstilwell1@bloomberg.net

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


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