Emerging Stocks Drop as China, Brazil Signal Tightening to Fight Inflation

Emerging-market stocks fell, prompting the benchmark index’s biggest two-day drop in almost three months, as China and Brazil’s central banks signaled further tightening to contain inflation. Commodity prices declined, pressuring producer shares.

The MSCI Emerging Markets Index retreated 1.3 percent to 1,170.93 as of 4 p.m. in New York. The gauge has slid 3 percent in two days, the most since Feb. 10. China’s Shanghai Composite Index sank 2.3 percent while South Korea’s Kospi Index (KOSPI) fell 0.9 percent. India’s Bombay Stock Exchange Sensitive Index slid 0.4 percent, dropping for an eighth day in the longest losing streak since May 2002, as the central bank yesterday boosted rates more than forecast.

“China’s imminent interest rate increases and lower commodity prices are giving investors a good excuse to take some money off the table,” said Mike Raz, who helps manage about $1.5 billion at Manila-based Rizal Commercial Banking Corp. “Rising interest rates and falling commodity prices are stoking fears of an economic slowdown.”

Russia’s Micex Index (INDEXCF) retreated 2 percent, its sixth decline in seven trading days as Brent oil dropped 1.4 percent to $120.72 a barrel. Hungary’s BUX Index fell 0.6 percent and Peru’s Lima General Index increased 6.1 percent after a poll showed Ollanta Humala, a one-time ally of Venezuelan President Hugo Chavez, and Congresswoman Keiko Fujimori running nearly even. Humala won the first round of voting; the election is June 5.

Bovespa Falls

Brazil’s Bovespa index fell 1.1 percent, its fifth decline in six days, as a drop in commodity prices offset an increase in first-quarter profits. Iron-ore miner Vale SA fell to the lowest in more than seven months while Brazilian steelmaker Cia. Siderurgica Nacional SA reported a 38 percent rise in first- quarter profit.

Peru’s sol strengthened 0.3 percent against the dollar while the real weakened 1.8 percent and the peso depreciated 0.6 percent.

The MSCI emerging market index has risen 1.7 percent this year, lagging behind the 7 percent gain in the MSCI World (MXWO) Index, as rising food prices and energy costs threaten growth. Brazilian central bank President Alexandre Tombini said he would increase interest rates for as long as needed to tame inflation. Yields on Brazilian interest-rate futures contracts rose in response.

Cut Lending

China Vanke Co., the nation’s biggest developer, fell 0.9 percent in Shenzhen, while China Citic Bank Corp. lost 2.9 percent in Hong Kong after Shi Yuan, the head of its risk management department, said on a conference call the lender aims to cut new real estate lending this year by at least one third from last year as risks in the sector have increased. Bajaj Auto Ltd. (BJAUT), India’s second-largest motorcycle maker, fell 4.7 percent to the lowest level since Feb. 28.

Bangko Sentral ng Pilipinas will increase its benchmark rate by a quarter of a percentage point to 4.5 percent tomorrow, according to 12 of 16 economists surveyed by Bloomberg News.

“Stabilizing prices and managing inflation expectations are critical,” the People’s Bank of China said in a first-quarter monetary policy report published yesterday. Bank reserve requirements have no “absolute ceiling,” the report said, restating Governor Zhou Xiaochuan’s comment on April 16.

China Securities Journal said the central bank will raise lenders’ reserve requirements this month and Shanghai Securities News reported China will extend limits on property purchases.

India Stocks

Stocks extended declines in India after Governor Duvvuri Subbarao indicated he would tighten borrowing costs further and predicted inflation will stay at “elevated levels” until September. Mahindra & Mahindra Ltd. (MM), the largest maker of sport- utility vehicles and tractors, slipped 0.6 percent.

In Taipei, Chimei Innolux, Taiwan’s largest LCD maker, fell 2.4 percent to the lowest in more than two years. The company posted a first-quarter net loss of NT$13.8 billion ($483 million) as prices failed to rebound and production problems delayed output of advanced panels. The average estimate of nine analysts compiled by Bloomberg was for a net loss of NT$9.7 billion.

Jiangxi Copper Co., China’s biggest copper producer, fell 1.9 percent in Hong Kong and Philex Mining Corp. (PX), the biggest Philippine metals producer, sank 3.3 percent, the sharpest loss since Feb. 28.

Copper for July delivery dropped 2.8 percent to close at $4.134 a pound on the Comex in New York, the biggest drop since March 9. Crude oil for June delivery declined 1.6 percent to $109.24 a barrel on the New York Mercantile Exchange, falling for a third day, after the U.S. Energy Department reported that inventories advanced for the eighth time in nine weeks.

To contact the reporters on this story: Ian C. Sayson in Manila at isayson@bloomberg.net; Berni Moestafa in Jakarta at bmoestafa@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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