Emerging-Market Stocks Drop on Europe Economic Growth Concern

Emerging-market stocks in Latin America, Europe, the Middle East and Africa dropped after data showed European economic growth slowed more than economists forecast in the second quarter.

The MSCI Emerging Market Latin America Index fell 0.2 percent at 5:00 p.m. New York time, after sliding as much as 1.8 percent. The MSCI Emerging Europe, Middle East and Africa Index declined 0.8 percent to 342.43. The benchmark emerging-markets equity gauge rose 0.5 percent to 1,018.64, buoyed by South Korean companies as the Kospi Index rallied 4.8 percent following a holiday yesterday.

Gross domestic product in the 17-nation euro area rose 0.2 percent from the first quarter, when it increased 0.8 percent, the European Union’s statistics office in Luxembourg said in a statement today. Economists had forecast the economy to expand 0.3 percent, according to the median of 34 estimates in a Bloomberg News survey.

“Something of a buying opportunity begins to develop in the sense we doubt policy makers will accept much more growth weakness without adjusting policies,” John Lomax, an emerging- markets strategist at HSBC Holdings Plc, said in a phone interview from London. “The valuations look pretty cheap. The equity markets have underperformed a range of other cyclical indicators. So in the sense of discount, it’s not bad news.”

Brazil, Saudi Arabia

Brazil’s Bovespa Index fell 0.6 percent, the first decline in six sessions, and Chile’s Ipsa index slid 0.8 percent. Equity indexes for Israel, Saudi Arabia and South Africa also fell.

Poland’s stock benchmark advanced for the third session and Turkey’s XU100 Index added 1.1 percent.

Speculation the U.S. recovery is faltering and Europe’s debt crisis will spread dragged MSCI’s emerging-markets measure down 10.5 percent this month. That sent valuations on the gauge to 9.3 times estimated profits in 12 months, the lowest level since March 2009, according to data tracked by Bloomberg.

In the U.S., production at factories, mines and utilities rose 0.9 percent in July, almost twice the 0.5 percent median forecast of 85 economists surveyed by Bloomberg News, according to data today from the Federal Reserve in Washington. Housing starts fell 1.5 percent to a 604,000 annual rate from June’s 613,000 pace that was less than previously estimated, figures from the Commerce Department showed.

Fitch Ratings affirmed its AAA credit rating for the U.S. and said the outlook is stable, citing the nation’s central role in the global financial system and the flexible, diverse economy. Moody’s Investors Service affirmed its top U.S. ranking last week while Standard & Poor’s on Aug. 5 cut its U.S. credit rating to AA+.

Bovespa Drops

The Bovespa snapped a five-day rally as commodity prices slid on European growth concern and a measure of Brazilian inflation quickened more than forecast.

Petroleo Brasileiro SA (PETR4), Brazil’s state-controlled oil company, followed crude prices lower even after reporting profit that beat forecasts. MMX Mineracao & Metalicos SA, the iron-ore producer controlled by Brazilian billionaire Eike Batista, joined the rout for raw-material producers and lost 4.2 percent.

Mexico’s Grupo Financiero Banorte SAB dropped 2 percent and Grupo Financiero Inbursa SA (GFINBURO), the financial services firm controlled by billionaire Carlos Slim, retreated 2.9 percent after French President Nicolas Sarkozy said his nation and Germany will propose a financial transaction tax.

“We are probably very close to the lows of the year; the reason I don’t emphatically say this is the buying moment is we still have an inflation problem in the big emerging markets,” Adrian Mowat, the chief Asia and emerging-market strategist at JPMorgan, said in a Bloomberg Television interview in Hong Kong.

Poland, Turkey, Russia

Poland’s WIG20 Index advanced 2.4 percent. Russia’s Micex Index slid 2 percent. The FTSE/JSE Africa All Share Index lost 0.6 percent in Johannesburg.

OTP Bank Nyrt., Hungary’s biggest lender, fell 3.4 percent after statistics office data showed gross domestic product was unchanged from the first quarter. The median estimate of nine economists in a Bloomberg survey was for an increase of 0.4 percent.

India’s Sensitive Index slipped 0.7 percent. The Shanghai Composite declined 0.7 percent.

Hyundai Glovis Co., the logistics unit of Hyundai Motor Group, advanced 8.3 percent in Seoul after saying second-quarter net income jumped 92 percent. In Taipei, Compal Communications climbed 7 percent, the most since July 5. South Korea’s ELK Corp. and Interflex Co., which supply parts to Motorola, surged by the daily limit of 15 percent after Google Inc. said yesterday it agree to buy Motorola Mobility Holdings Inc. for about $12.5 billion in cash.

The Markit iTraxx SovX CEEMEA Index of eastern European, Middle East and Africa credit-default swaps gained two basis points to 241.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries climbed two basis points, or 0.02 percentage points, to 3.63 percentage points.

To contact the reporter on this story: Belinda Cao in Beijing at lcao4@bloomberg.net; Jason Webb in London at jwebb25@bloomberg.net.

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

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