Bloomberg News

Emerging ETF Sinks as Italy Elections Concern Curbs Risky Assets

February 25, 2013

The iShares MSCI Emerging Markets Index (MXEF) exchange-traded fund sank to the lowest level this year and emerging-market consumer stocks fell as concern elections in Italy won’t deliver a government cut demand for riskier assets.

Cia de Bebidas das Americas drove declines among consumer staple companies, and Brazilian billionaire Eike Batista’s oil producer OGX Petroleo & Gas Participacoes SA plunged the most since June. Hyundai Motor Co. (005380) sank the most in a month after the South Korean won strengthened against the yen. PGE SA, Poland’s largest utility, dropped to a record. China Petroleum & Chemical Corp. (600028) rose the most in 10 weeks in Shanghai as the government allowed refiners to raise fuel prices.

The iShares ETF retreated 1.3 percent to $42.70 in New York, the lowest level since Dec. 6. The MSCI Emerging Markets Index rose 0.1 percent to 1,054.41, with 359 stocks rising and 387 falling. Italy may need a second election after the four-way race that ended today looked to result in a divided parliament. The 21 countries in the developing-nations gauge send about 26 percent to the European Union on average, data compiled by the World Trade Organization show.

“If the emerging market fundamentals don’t change overnight, sentiment is souring,” Seth Freeman, chief executive officer at EM Capital Management LLC, said by phone from San Francisco today. “Italy has a high level of borrowing and debt, and that part makes investors very nervous and highlights the importance of governance.”

Berlusconi’s Government

Emerging-market companies are posting the longest stretch of weaker-than-estimated earnings since the global financial crisis in 2009, dragging equity valuations to a four-year low versus developed-nation shares.

The Chicago Board Options Exchange Emerging Markets ETF Volatility Index (VXEEM), a measure of options prices on the fund and expectations of price swings, surged 24 percent to 21.86.

The Italian elections suggest three-time premier Silvio Berlusconi may have built a blocking minority in the Senate to deny victory to Pier Luigi Bersani. A hung parliament at third- biggest euro-area economy would challenge the European Union’s embrace of austerity aimed at resolving the region’s debt crisis and pulling it out of recession. The euro-area economy will shrink in 2013, the European Commission predicted on Feb. 22, paring a previous forecast for growth.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose 7 basis points, or 0.07 percentage points, to 293, according to JPMorgan Chase & Co.’s EMBI Global Index.

Mexico, Brazil

The Mexican IPC index declined 0.9 percent to the lowest level in two months. Brazil’s Bovespa (IBOV) fell as Cia de Bebidas das Americas, Latin America’s largest brewer, dropped 3.3 percent, the most since June 1. OGX sank 8.9 percent. Usinas Siderurgicas de Minas Gerais SA jumped 6.8 percent to the highest level in a week.

Russia’s Micex Index added 0.5 percent, led by preferred shares of OAO Surgutneftegas, an oil producer. The ruble lost 0.3 percent versus the dollar.

OAO Gazprom, Russia’s biggest natural-gas producer, rose 1 percent to its highest close since Feb. 7. Renaissance Capital raised its estimate to $14, while it reiterated a buy recommendation for Gazprom.

The Czech PX Index jumped 1.4 percent, leading gains among major emerging markets tracked by Bloomberg. AAA Auto Group NV (AAA), a chain of used-car dealerships, increased 3.6 percent in Prague, its biggest leap since Jan. 11.

Poland’s WIG20 Index rose 0.7 percent, paring gains of as much as 1.2 percent. PGE fell 3.9 percent to a record low 15.39 zloty ($4.84) in Warsaw in its second day of declines.

Debt Restructuring

Central European Distribution Corp. (CEDC:US), maker of the Zubrowka and Bols vodka brands, sank 55 percent to 62 cents in the U.S., a record plunge, while its Warsaw-traded shares dropped 20 percent to the lowest level since at least 2006. CEDC announced exchange offers (CEDC:US) for convertible senior notes due 2013 and senior secured bonds due 2016 in an effort to restructure the company’s debt, according to a company filing posted after the close in New York. The debt restructuring is needed to avoid bankruptcy.

Netia SA (NET) climbed 4.2 percent, its biggest jump in two weeks. Morgan Stanley will look for an industry or financial investor interested in buying Netia’s shares held by private equity funds Third Avenue Management LLC and Sisu Capital Ltd., Dziennik Gazeta Prawna reported today, citing people with knowledge of the deal.

The shekel fell 0.5 percent to 3.7276 versus the dollar after the Bank of Israel kept its benchmark interest rate unchanged at its lowest in more than two years as rising house prices balanced slowing growth and inflation.

Monetary Easing

Gauges consumer discretionary companies in the MSCI Emerging Markets Index declined 0.3 percent, the most among 10 industry groups. The broader measure is down less than 0.1 percent this year, compared with a 3.9 percent increase in the MSCI World Index of developed nations.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese stocks in the U.S. slid 1.4 percent to 92.86 as Yingli Green Energy Holding Co., the world’s biggest silicon-based solar panel maker by capacity, sank to the lowest level this month.

The Philippine Stock Exchange Index rose 0.8 percent to a record, while Indonesia’s Jakarta Composite Index climbed 1 percent to an all-time high. Vietnam’s VN Index increased 1.3 percent after a report showed inflation slowed and on speculation the central bank is accelerating measures to resolve bad debt among lenders.

Won Gaining

Bank Central Asia Tbk PT (BBCA) surged 7.1 percent to a record, as investors believe the company will post better-than-expected 2012 earnings, Syaiful Adrian, analyst at Ciptadana Securities said by phone today. The company was the biggest gainer on the MSCI Emerging Markets Index.

Asian Development Bank President Kuroda said this month there is “substantial room” for monetary easing. China’s manufacturing is expanding at the slowest pace in four months, a private survey showed today, underscoring the headwinds faced by policy makers in the world’s second-biggest economy.

The Hang Seng China Enterprises Index added 0.1 percent. The Shanghai Composite Index (SHCOMP) advanced 0.5 percent, its first increase in three days. Guangzhou Automobile Group Co. dropped 5 percent to the lowest since Dec. 4.

Taiwan’s Taiex Index and South Korea’s Kospi index sank 0.5 percent each. Hyundai Motor dropped the most in a month on the South Korean won’s gain against the yen. Hyundai, South Korea’s biggest automaker, fell 2.1 percent and Kia Motors Corp. (000270) slid 0.9 percent.

China Petroleum, also known as Sinopec, advanced 2.7 percent, its first gain in three days, after the government allowed refiners to boost prices for the first time since September. Gasoline will increase by 300 yuan ($48) a metric ton and diesel by 290 yuan a ton effective today, the National Development and Reform Commission said in a statement on its website yesterday.

To contact the reporters on this story: Victoria Stilwell in New York at vstilwell1@bloomberg.net; Maria Levitov in London at mlevitov@bloomberg.net

To contact the editors responsible for this story: Gavin Serkin at gserkin@bloomberg.net; Emma O’Brien at eobrien6@bloomberg.net


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