Emerging Stocks Cheapest Since 2009 on China Slowdown Concerns

Emerging-market equities tumbled on concern a Chinese slowdown will worsen the decline in global growth, pushing equity valuations to the cheapest level in three years compared with developed-market shares.

The MSCI Emerging Markets Index (MXEF) dropped for a fourth day, retreating 1.1 percent to 1,049.79 at the close in New York, its longest losing streak since December. Stocks on the gauge trade for 10.7 times estimated earnings, compared with 13.2 times for developed-country equities on the MSCI World Index. (MXWO) The gap is the widest since Feb. 18, 2009.

The best start to a year for emerging-market shares since 1992 is faltering as China cut its growth target on March 5, and data from trade and retail sales to home prices signal the world’s second largest economy is slowing. Emerging-market stocks have retreated 2.8 percent from a seven-month high reached on March 2, curbing the year’s rally to 15 percent, still on track for the best first-quarter gain since 1992.

“People’s hopes that there would be a strong cyclical rebound in emerging-market economies in the first half are being recalibrated to a more realistic setting,” Nick Chamie, head of emerging markets at RBC Capital Markets in Toronto, said by phone. “Emerging-market global growth conditions will continue to look lackluster and China and other major emerging-market commodity demand will likely be soft.”

China, the world’s biggest energy consumer and steelmaker, is raising fuel prices for the second time in less than six weeks, according to a government statement yesterday. Vehicle sales may miss industry growth forecasts in 2012 as economic growth slows, Gu Xianghua, deputy secretary of the China Association of Automobile Manufacturers said.

Energy Leads Drop

Emerging-market energy and materials producers led the drop in the MSCI Index. Gerdau SA (GGBR4), Brazil’s largest steelmaker, slumped 2.2 percent, the biggest drop in two weeks, pushing the Bovespa Index to a one-week low. The Hang Seng China Enterprises Index (HSCEI) retreated 1.5 percent to close at the lowest level since Jan. 16. Mining companies led South African stocks lower.

The iShares MSCI Emerging Markets Index exchange-traded fund, the most-traded ETF that tracks developing-nation shares, dropped 1.7 percent to $43.16, slumping for a third day.

The Chicago Board Options Exchange Emerging Markets ETF Volatility Index (VXEEM), a gauge of options prices on the fund and expectations of price swings, jumped 5.1 percent to 25.14 at 4:46 p.m. in New York, rising for the first time in four days.

U.S. housing starts fell in February from a three-year high, the Commerce Department said today.

BHP Sees Slowdown

BHP Billiton Plc, the world’s biggest mining company, slid 3.1 percent in South Africa, the biggest one-day decline since Nov. 21. The FTSE/JSE Africa All Shares Index (JALSH) retreated 1 percent in Johannesburg.

China’s steel production is slowing as the economy focuses more on consumers than large infrastructure projects, Ian Ashby, president of iron ore at BHP, the world’s third-largest exporter, said today. David Joyce, managing director of expansion projects at Rio Tinto Group (RIO), the world’s second- biggest iron-ore exporter, said the company is seeing a slowdown in China, its biggest customer.

Vale SA (VALE5), the world’s largest iron-ore producer, slumped for the first time in four days, losing 0.8 percent. Iron-ore producer MMX Mineracao & Metalicos SA (MMXM3) lost 1.7 percent. The Bovespa slid 0.6 percent as 54 stocks fell on the 70-share gauge.

Gazprom Retreats

The Standard & Poor’s GSCI commodities index declined 1.5 percent, the most in two weeks.

OAO Gazprom slid 2.6 percent in Moscow and the Micex Index (MICEX) retreated 1.7 percent. OAO GMK Norilsk Nickel (GMKN), Russia’s largest mining company, declined 3.9 percent to the lowest level since Jan. 20.

The ISE National 100 Index (XU100) dropped 0.6 percent in Istanbul, slipping for the first time in six days.

Zhongsheng Group Holdings Ltd. (881), a Beijing-based auto retailer, slumped 6.7 percent in Hong Kong, the most since March 1.

Most emerging-market currencies weakened against the dollar, with South Africa’s rand depreciating 0.9 percent and Turkey’s lira falling 1.1 percent.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose three basis points, or 0.03 percentage point, to 318 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editors responsible for this story: Gavin Serkin at gserkin@bloomberg.net; Emma O’Brien at eobrien6@bloomberg.net

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