Bloomberg News

Emerging Stocks Cap Longest Drop Since November on Cyprus

March 19, 2013

Emerging stocks fell a seventh day, capping the longest slump since November, as Cyprus lawmakers rejected a tax on bank deposits needed to win a financial bailout. Mexican stocks sank to a three-month low.

Oil & Natural Gas Corp. fell 2.5 percent as India’s ruling alliance’s largest ally withdrew support and the central bank said there’s limited room for further monetary easing. Grupo Mexico SAB slumped 3.6 percent, pacing losses in the IPC (MEXBOL) Index, as copper declined to the lowest in almost seven months. Brazil’s Vale SA (VALE3), the world’s largest iron-ore producer, plunged 3.9 percent after Goldman Sachs Group Inc. cut its price forecast for the steel-making material.

The MSCI Emerging Markets Index fell 0.5 percent to 1,024.96 in New York, the lowest level since December 7. Cyprus President Nicos Anastasiades failed to secure Parliament’s support for imposing losses on depositors, a key demand of European officials in return for funds.

“Cyprus has been out there as a situation that could be problematic,” Walter Todd, who oversees about $940 million as chief investment officer of Greenwood Capital Associates LLC in Greenwood, South Carolina, said in a telephone interview. “It elevated risk levels in the short term.”

Stocks fell even after the European Central Bank said it will provide liquidity to Cyprus. Legislators in the capital Nicosia voted 36 against the proposal with none in favor in a show of hands today. There were 19 abstentions. Hammered out by euro-area finance chiefs at the weekend, the deal had sought to raise 5.8 billion euros ($7.5 billion) by drawing funds from Cyprus bank accounts in return for 10 billion euros in aid.

Biggest Losses

Eight out of 10 groups in the developing-nations index dropped today as commodity and financial shares had the biggest losses. The broader measure has slipped 2.9 percent this year and trades at 10.8 times estimated 12-month earnings, according to data compiled by Bloomberg. That compares with a multiple of 14.1 for the MSCI World Index (MXEF) of developed-nation shares, which has climbed 6.6 percent in 2013.

The iShares MSCI Emerging Markets Index exchange-traded fund fell 0.7 percent to $41.99. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a gauge of options prices on the fund and expectations of price swings, jumped 3.1 percent to 19.10.

Mexico’s IPC dropped 1.3 percent, slumping for a second straight day. Grupo Mexico, the nation’s biggest mining company by market value, capped the largest drop since Feb. 25. Homebuilders declined for an eighth-straight day.

Brazil’s Bovespa dropped 1.1 percent. Vale SA had the biggest drop since July as Goldman also cut its price-estimate on the company’s American depositary receipts.

Russian Stocks

The Micex Index (INDEXCF) lost 0.9 percent by the close in Moscow. VTB Group and OAO Sberbank, the nation’s largest lenders, decreased 1.8 percent and 0.7 percent, respectively. OAO Mechel, Russia’s biggest coking coal producer, lost 3.4 percent.

The S&P BSE Sensex fell 1.5 percent in Mumbai, the sharpest decline since Feb. 28. Oil & Natural Gas capped a third day of losses. Prime Minister Manmohan Singh’s government would be 44 seats short of a majority in parliament without the Dravida Munnetra Kazhagam, leaving it even more reliant on the support of fickle regional parties to pass legislation such as bills to boost foreign investment in pensions and insurance.

Chinese equities slid to a four-month low in New York, as China Mobile Ltd. led a retreat among phone companies and Suntech Power Holdings Co. extended declines after defaulting on a bond payment.

Domestic Equities

The Shanghai Composite Index (SHCOMP) will rally shortly after reaching a 2013 low this week, according to Tom DeMark, the founder of Market Studies LLC who correctly predicted a retreat in the Chinese stock gauge last month. The measure of domestic Chinese equities will rebound once it falls below 2,232 on March 20 or 21, DeMark said by e-mail today. That would be the lowest level since Dec. 27 for the Shanghai Composite, which declined to as low as 2,232.02 today.

The extra yield investors demand to own developing-nation dollar debt over U.S. Treasuries rose seven basis points, or 0.07 percentage point, to 299, according to the JPMorgan Chase & Co. EMBI Global Index.

To contact the reporters on this story: Lyubov Pronina in London at lpronina@bloomberg.net; Julia Leite in New York at jleite3@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net


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