Bloomberg News

Emerging Stocks Drop on China Earnings as Brazil Tumbles

April 02, 2013

Emerging stocks fell a second day as disappointing Chinese earnings and tensions on the Korean peninsula overshadowed gains in eastern European equities. Brazilian shares slumped the most in six weeks.

China Citic Bank Corp. (998) dropped the most since June in Hong Kong as earnings missed analyst estimates. STX Offshore & Shipbuilding Co. tumbled 15 percent in Seoul as it’s seeking to restructure debt. The won weakened a second day after North Korea said it will restart nuclear facilities. Benchmark gauges in the Czech Republic and Hungary rallied, while homebuilder Brookfield Incorporacoes SA paced losses in Brazil.

The MSCI Emerging Markets Index (MXEF) lost 0.2 percent to 1,029.10 in New York. More than 55 percent of companies on the index that reported annual earnings this year trailed analysts’ estimates, data compiled by Bloomberg show. North Korea will restart all facilities at the Yongbyon nuclear site, according to the official Korean Central News Agency.

“Chinese companies have had some negative earnings surprises as they adjust to a more moderate growth environment,” Timothy Ghriskey, the chief investment officer at Solaris Group LLC in New York, which manages about $2 billion, said by phone. “Korea has a geopolitical issue that’s adding to the risk sentiment for emerging markets in general.”

Commodity and industrial companies in the MSCI Emerging Markets Index slid the most among 10 groups. The broader measure has slipped 2.5 percent this year, compared with a 7.2 percent gain in the MSCI World Index (MXWO) of developed-country stocks. The developing-nations gauge trades at 10.7 times projected 12-month earnings, compared with the MSCI World’s multiple of 13.9, according to data compiled by Bloomberg.

Emerging ETF

The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF tracking developing-nation shares, gained less than 0.1 percent to $42.33. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, fell 2.3 percent to 17.77.

Brazil’s Bovespa index dropped 1.8 percent, the steepest decline since Feb. 20. Brookfield tumbled 9 percent to a four- year low. Steelmaker Usinas Siderurgicas de Minas Gerais SA fell 4.1 percent.

The Mexican IPC Index gained 0.4 percent as U.S. stocks rose amid data showing factory orders at the world’s largest economy advanced the most in five months in February.

Russian shares advanced on speculation the country’s depositors won’t suffer severe losses in Cyprus’s debt crisis and as the central bank signaled it may cut its main rates. The Micex Index added 0.1 percent. OAO Sberbank, Russia’s largest lender, rose 0.9 percent.

Hungary, Turkey

Benchmark gauges in Hungary and the Czech Republic gained at least 1.3 percent, as trading resumed after a holiday weekend. Istanbul’s ISE National 100 Index fell 0.1 percent.

Chinese stocks fell to a three-month low as health-care companies slumped. The Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in Hong Kong slid 0.8 percent. China Citic Bank tumbled 6 percent. Angang Steel Co. (000898) shares gained 13 percent in Hong Kong, the most since December 2011 for the biggest advance in the emerging markets gauge.

South Korea’s Kospi Index (KOSPI) dropped 0.5 percent. STX Offshore slumped by its 15 percent daily limit, the biggest decline since its listing in October 2003.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell four basis points, or 0.04 percentage point, to 304 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporters on this story: Saeromi Shin in Seoul at sshin15@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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