Emerging Stocks Fall on Global Growth Concern After Moody’s Cuts

Emerging-market stocks fell after Moody’s Investors Service cut the debt ratings of six European nations and U.S. retail sales rose less than forecast, rekindling concern that Europe’s crisis may curb global growth.

The MSCI Emerging Markets Index (MXEF) lost 0.5 percent to 1,048.06 at 12:12 p.m. in New York. The Shanghai Composite Index (SHCOMP) dropped 0.3 percent and the ISE National 100 Index slid 1.5 percent in Istanbul. Brazil’s Bovespa fell 0.6 percent as producers followed a drop in metal prices.

The U.K. and France may be stripped of their top Aaa ratings, Moody’s said as it reduced the debt rankings of countries including Italy, Spain and Portugal on concern economic weakness may threaten austerity programs and reforms. U.S. retail sales rose 0.4 percent in January, half the 0.8 percent gain forecast by economists in a Bloomberg survey, Commerce Department figures showed today.

“We’ve had a cautious day” as investors weigh the European downgrades and U.S. retail sales data, Neil Shearing, an emerging markets economist at Capital Economics Ltd. in London, said by phone. “An almost unique level of uncertainty” means “there’s plenty of people sitting on the sidelines waiting to see how this will play out.”

European Union finance ministers are due to convene in Brussels tomorrow for their second extraordinary meeting in a week after telling Greek officials to identify additional cuts of 325 million euros ($428 million). The measures are among the conditions that must be met for Greece to secure a 130 billion- euro rescue needed to avert financial collapse.

Russia, India, Brazil

In Brazil, miner Vale SA (VALE5) lost 2 percent and steelmaker Gerdau SA (GGBR4), which generated 37 percent of its third-quarter revenue from North America, fell 1.7 percent.

OAO Lukoil (LKOH), Russia’s second-largest oil producer, gained 1 percent as oil rose on concern that tensions with Iran may hinder Middle East exports.

The BSE India Sensitive Index, or Sensex (SENSEX), added 0.4 percent as the nation’s inflation rate slowed more than expected.

The rally that’s boosted emerging-market stocks 14 percent this year may pause as sentiment is too optimistic and fund inflows reached the highest level in 15 months, according to Bank of America Corp. and Morgan Stanley. Investor holdings in emerging markets have climbed to a level that historically foreshadowed short-term underperformance, Michael Hartnett, the chief global equity strategist at Bank of America, wrote today.

Emerging-Market Inflows

Last week’s inflow into emerging-market stock funds increased the net investment in 2012 to $17 billion, compared with outflows of $11.4 billion for the same period of 2011, Cambridge, Massachusetts-based EPFR Global said in a report e- mailed on Feb. 10.

The MSCI emerging-markets gauge trades for 10.5 times estimated profits, compared with 12.6 times for the MSCI World index (MXWO) of developed nations.

Sri Lanka’s Colombo All-Share Index (CSEALL) plunged 3.7 percent to 5009.96, the lowest level since August 2010. The gauge has slumped 17.5 percent this year, the most among 93 major benchmark gauges tracked by Bloomberg. Stocks and the rupee have fallen as the government scrapped a currency trading band to help conserve foreign-exchange reserves, and boosted fuel prices.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries increased 3 basis points, or 0.03 percentage points, to 382 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporter on this story: Gan Yen Kuan in Kuala Lumpur at ykgan@bloomberg.net; Zachary Tracer in New York at ztracer1@bloomberg.net.

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net.

5:14

Feb. 14 (Bloomberg) -- Patrick Moonen, senior strategist at ING Investment Management, discusses emerging-market equities. He speaks from The Hague with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)