Emerging Stocks Fall Third Day, Trim Weekly Gain; Forint Rallies

Emerging-market stocks fell for a third day, paring the benchmark index’s weekly gain, on concern Europe’s worsening debt crisis will hurt exports to the region.

The MSCI Emerging Markets Index (MXEF) sank 0.4 percent to 928.13 at 12:26 p.m. in London, cutting this week’s gain to 1.4 percent. South Korea’s Kospi Index (KOSPI) slid 1.1 percent as financial regulators said they were investigating the spreading of rumors about an explosion in North Korea. Hungary’s forint rallied and the BUX Index (BUX) rose 1.2 percent, rebounding from a two-month low.

German factory orders dropped the most in almost three years in November as the euro region economy edged toward a recession and global demand weakened. Hungarian Prime Minister Viktor Orban said the country needed to get an International Monetary Fund aid deal, after the forint sank to a record and a debt auction fell short of the target. Fitch Ratings said it was downgrading Hungary to junk level.

“Investors are hopeful that the current low-valuation base across emerging-market equities provides a good basis for performance this year but clearly remain wary of the threat to global growth posed by the unresolved euro-zone debt crisis,” Chris Weafer, chief strategist at Troika Dialog in Moscow, said in an e-mailed comment.

The MSCI emerging-market index slipped 20 percent last year, while the MSCI World Index of developed nations lost 7.6 percent amid concern Europe’s worsening debt crisis and slowing global growth will hurt corporate earnings. The gauge of developing nations is valued at 9.5 times estimated profit (MXEF), compared with the MSCI World’s multiple of 11.6 times.

Hiring in the U.S. probably accelerated in December for a second month, economists said before a Labor Department report today.

Fund Inflows

Emerging-stock funds had a second straight week of inflows, taking in $800 million in the week ended Jan. 4, Markus Rosgen, an analyst at Citigroup Inc., wrote in a report today, citing figures compiled by EPFR Global. Global equity funds had outflows of $400 million, according to the report.

The South Korean won declined as much as 0.9 percent to its weakest level since Dec. 20. No evidence has come to support rumors which centered on speculation of an explosion in North Korea, Kim Soo Mi, a spokeswoman for the Financial Supervisory Service, said in Seoul.

Hungarian stocks rebounded following their 5.3 percent slide in the preceding three sessions. The forint strengthened as much as 1.1 percent against the euro and 10-year government bonds (GHGB10YR) in forint rose, cutting the yield 32 basis points to 10.077 percent, as Orban pledged to cooperate with central bank President Andras Simor after a dispute about the bank’s independence threatened the country’s bailout. The forint pared gains and appreciated 0.4 percent after Fitch Ratings said it was downgrading Hungary to BB+, the highest junk level, with a negative outlook.

Stocks, Ruble

The Micex Index (MICEX) gained 0.8 percent in Moscow The ruble gained 0.3 percent against the dollar as oil rose in New York. The FTSE/JSE Africa All Share Index (JALSH) advanced 0.7 percent in Johannesburg.

The Indian rupee gained 0.5 percent and Indonesia’s rupiah appreciated 0.7 percent.

The Shanghai Composite Index (SHCOMP) rose 0.7 percent, snapping a two-day, 2.3 percent drop, on speculation the central bank will cut banks’ reserve-requirement ratios to boost lending to small companies hurt by a cash crunch.

“The weekend’s here and there’s always the optimism it may happen,” said Zhang Gang, a strategist at Central China Securities Holdings Co. in Shanghai. “Such a rebound may not last unless the cut really happens.”

China Shanshui Cement Group Ltd. (691) slid 7.8 percent, the worst performer in MSCI’s emerging-market index, leading declines among cement producers listed in Hong Kong, on speculation their earnings will be hurt by a possible carbon tax. China is considering imposing the tax in the middle or end of the 2011-2015 period, the Economic Information Daily reported.

The extra yield (JPEGSOSD) investors demand to own emerging-market debt over U.S. Treasuries fell two basis points, or 0.02 percentage point, to 418, according to JPMorgan Chase & Co. (JPM)’s EMBI Global Index.

The Markit iTraxx SovX CEEMEA Index (ITXSCE) of eastern European, Middle East and Africa credit-default swaps fell six basis points to 361, according to data provider CMA.

To contact the reporters on this story: Gan Yen Kuan in Kuala Lumpur at ykgan@bloomberg.net; Jason Webb in London at jwebb25@bloomberg.net.

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

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