Emerging-market stocks fell the most in more than two months as European leaders delayed a rescue package for Greece and China’s trade data signaled growth in the world’s second-largest economy is weakening.
The MSCI Emerging Markets Index (MXEF) dropped 1.8 percent to 1,042.15 at the close in New York, retreating from a six-month high and erasing its weekly gain. The Hang Seng China Enterprises Index (HSCEI) sank 2.3 percent. Benchmark gauges in Hungary and the Czech Republic lost more than 2 percent. Brazil’s Bovespa fell 2.3 percent, the most this year.
Greek Prime Minister Lucas Papademos obtained approval from his Cabinet for deeper budget cuts needed to secure a second package of international aid. The approval capped a week of tension in Athens as European Union and International Monetary Fund officials argued with Greek government officials over the conditions required to secure the 130 billion-euro ($172 billion) rescue package.
“The delay has raised the level of uncertainty in the market,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc. in Manila. “Some investors are worried this might not be done on time. Greece has to tighten its belt to improve its ability to service debt and reduce prospects of a default.”
The measure for developing markets has gained 14 percent in 2012, beating a 7.4 percent advance by the MSCI World Index (MXWO) of developed-nation shares. MSCI’s emerging-stocks gauge trades for 10.3 times estimated profit, up from an October low of about 9 times. The index has dropped 0.6 percent this week.
Emerging-market equity funds lured the most inflows since October 2010 in the week ended Feb. 8, taking in $5.8 billion, according to Cambridge, Massachusetts-based EPFR Global.
Emerging-market stocks are “overbought” as investors pour money into the funds, according to Morgan Stanley. The brokerage reduced its weighting on emerging and Asian stocks from the maximum “overweight” and boosted cash holdings to 2 percent from zero, Jonathan Garner and Pankaj Mataney, strategists at Morgan Stanley, wrote in a report dated today.
“Strong inflows are a near-term contrarian negative,” Garner and Mataney wrote. “The market is technically overbought.”
The 14-day relative strength index for the MSCI gauge closed at 82 yesterday, the highest since October 2010. A reading above 70 signals stocks may have rallied too quickly and may weaken, according to some technical analysts.
Petrobras, as the state-controlled oil company is known, fell 7.8 percent, the most since December 2008. MPX dropped 1.9 percent after announcing plans to delay a Colombian coal project by more than a year.
The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose seven basis points, or 0.07 percentage point, to 386, according to JPMorgan Chase & Co.’s EMBI Global Index.
The so-called yield spread for Egyptian debt increased 6 basis points to 559, according to JPMorgan. The country had its credit rating cut by one level to B, five levels below investment grade, at Standard & Poor’s today. The ratings company cited a decline in foreign-exchange reserves along with “ongoing political uncertainties” a year after the ouster of President Hosni Mubarak.
South Africa’s benchmark equity gauge fell 1.1 percent, while the rand weakened 2.1 percent against the dollar as the S&P GSCI Index (SPGSCI) of commodities fell for the first time in six days. Commodities account for about 60 percent of South Africa’s exports, according to government data.
Russia’s Micex Index declined 1.1 percent.
China’s exports fell and imports slid more than forecast in January as a weeklong holiday disrupted trade while commodity prices dropped.
China’s exports decreased 0.5 percent and imports fell 15.3 percent from a year earlier, the customs bureau said on its website today. The median estimate of 30 economists was for a 3.6 percent drop in imports for the month, which had four fewer working days than January 2011 because of the holiday. The trade surplus widened to a six-month high of $27.3 billion.