Emerging-Market Stocks Plunge Most Since May; Currencies, Bonds Retreat

Emerging-market stocks tumbled the most in seven weeks, currencies weakened and borrowing costs rose as Europe’s debt crisis worsened.

The MSCI Emerging Markets Index sank 1.9 percent to 1,121.27 at 4:40 p.m. in New York, the biggest loss since May 23. China’s benchmark equity index slid the most in seven weeks while India’s Sensex Index fell to a three-week low after factory production growth slowed. Brazil’s equities fell for a sixth day. Poland’s zloty weakened 1.3 percent and Hungary’s forint slid to the lowest level since March versus the dollar.

The MSCI index posted the largest two-day drop since June 2010 as Spanish bond yields soared to a euro-era record and Ireland’s credit rating was cut to junk by Moody’s Investors Service. The extra yield investors demand to own emerging-market debt over U.S. Treasuries jumped five basis points to 3.18 percentage points, the highest level in two weeks, according to JPMorgan Chase & Co.’s EMBI Global Index.

“Risk appetite nosedived with the contagion concerns from Eurozone issues coming to the forefront again,” David Hauner, a London-based strategist at Bank of America Merrill Lynch, wrote in a report today.

Infosys Ltd., India’s second-largest software exporter with 22 percent of its sales from Europe, lost 4.4 percent in Mumbai as its sales forecast trailed those of analysts. Technology stocks led MSCI’s gauge of emerging-market stocks lower with a 2.9 percent slide, the biggest among 10 industries.

China, East Europe

China’s Shanghai Composite Index lost 1.7 percent as new loans and money supply exceeded estimates, spurring speculation that it will be difficult for policy makers to ease tightening policies. The Hang Seng China Enterprises Index tumbled 3.7 percent, the most since May 2010, after Moody’s said some Chinese companies are engaging in potentially risky business practices.

Poland’s WIG20 retreated 0.3 percent, the Czech PX Index declined 0.6 percent and Hungary’s BUX extended losses after sliding yesterday the most since April. The ISE National 100 Index in Turkey declined for a third day as the lira fell to the weakest versus the dollar since April 2009.

Nine hours of talks yesterday by European finance chiefs resulted in a six-paragraph statement in which the 17 euro governments pledged to flesh out a new master plan “shortly” to end the 21-month-old crisis, without setting a timeline. The meetings ended today with all 27 European Union finance ministers planning a response to the release of bank stress tests later this week.

Gerdau SA and Usinas Siderurgicas de Minas Gerais, Brazil’s largest steelmakers, both fell for the sixth consecutive day. YPF SA, Argentina’s largest oil company, lost 4.7 percent, the most among decliners on the Merval Index.

Record Yields

The yield on Italian 10-year bonds rose above 6 percent for the first time since 1997 while the yield for similar-dated Spanish bonds reached 6.3 percent, data compiled by Bloomberg show. Italy has 1.6 trillion euros ($2.24 trillion) of bonds outstanding, the world’s third-largest debt pile after the U.S. and Japan, while Spain owes 655 billion euros. Moody’s cut Ireland’s rating to Ba1 from Baa3, after it downgraded Portugal’s by four levels to Ba2 on July 5. The euro fell to the lowest in almost four months versus the yen today.

The MSCI Emerging Markets Information Technology Index sank the most since March 15. Infosys said sales in the year to March will range from $7.1 billion to $7.3 billion, missing the $7.5 billion average of 56 analyst estimates compiled by Bloomberg.

‘Overhang’

The European debt crisis may put pressure on the profits of banks and financial services companies and that’s an “overhang” for the Indian software industry, said Girish Pai, an analyst at Centrum Broking Pvt. in Mumbai.

Moody’s cited five Chinese companies as having more “red flags” on corporate governance than others out of 61 firms it examined, sending shares of West China Cement Ltd. (2233) to a record 14 percent decline.

The ratings company looked at criteria that “highlight issues meriting scrutiny to identify possible governance or accounting risks,” analysts led by Elizabeth Allen in Hong Kong wrote in a report issued yesterday.

To contact the reporters on this story: Michael Patterson in London at mpatterson10@bloomberg.net; Belinda Cao in New York at lcao4@bloomberg.net

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

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