Emerging Stocks Drop as China Manufacturing May Contract

Emerging-market stocks extended their longest losing streak in 2012 as an index showed China’s manufacturing may contract for a fifth month while euro-area output shrank more than economists forecast.

The MSCI Emerging Markets Index fell 0.7 percent to 1,040.58 in New York, slipping for a sixth day. Energy and materials companies retreated the most, with OAO Gazprom, the world’s largest natural gas exporter, tumbling 2.2 percent. JBS SA (JBSS3), the world’s largest beef producer, plunged the most in 11 weeks in Sao Paulo after reporting lower-than-estimated profit for the fourth quarter.

A preliminary measure of Chinese manufacturing fell to 48.1 in March, the lowest level since November, according to data from HSBC Holdings Plc and Markit Economics. A euro-area gauge of services and manufacturing output dropped to 48.7 from 49.3 in February, London-based Markit said in an initial estimate today, below all but one forecast in a Bloomberg survey of 21 economists. Readings below 50 indicate contraction.

“This reinforces a sense that growth is slowing down, but for China at least we think we come out on the other side of this with easing,” John Lomax, an emerging-markets strategist at HSBC, said by phone from London. “For Europe, it’s a bit more problematic in that Europe doesn’t have the ability to change policy in the same way, and it suggests a recession this year.”

ETF, Volatility

Emerging-market shares have declined 3.6 percent this month, amid signs of slowing growth in China and Europe. Developing-country stocks trade for 10.7 times estimated earnings, compared with a 13.1 ratio for developed-nation shares, which advanced 0.4 percent this month.

The iShares MSCI Emerging Markets Index exchange-traded fund, the most-traded ETF that tracks developing-nation shares, fell 1.5 percent to $42.58 today, the lowest level since March 6. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a gauge of options prices on the fund and expectations of price swings, rose 6 percent to 25.96.

Brazil’s Bovespa Index (IBOV) slid 1.5 percent, the largest one-day loss since March 6. JBS retreated 7.1 percent.

The 48.1 reading for Chinese manufacturing compares with a final 49.6 in February. Economists had forecast a gain for the euro area composite index to 49.6, according to the median of 21 estimates in a Bloomberg survey.

The Hang Seng China Enterprises Index (HSCEI) of Chinese companies listed in Hong Kong fell less than 0.1 percent, its seventh straight decline and the longest losing streak since June.

The Standard & Poor’s GSCI Index of commodities fell 1.1 percent to the lowest level in more than two weeks.

Micex Tumbles

KGHM Polska Miedz SA, Poland’s only copper producer, fell 2.1 percent, while the WIG20 Index (WIG20) slipped 1.6 percent in Warsaw.

The Micex Index slid 1.4 percent in Moscow to the weakest level since Feb. 10, while the FTSE/JSE Africa All Shares Index (JALSH) retreated 1 percent in Johannesburg.

Taiwan’s Taiex Index (TWSE) climbed 1 percent. Pegatron Corp. (4938), which makes iPhones for Apple Inc., jumped 7 percent to a record, as brokerages from Yuanta Financial Holding Co. to Nomura Holdings Inc. raised their price estimates after the company’s fourth-quarter profit beat analyst projections.

A gauge tracking technology stocks rose 0.7 percent, the only advance among 10 industry groups on the developing-nations index, after Daiwa Securities Group Inc. said memory-chip price increases may accelerate. Hynix Semiconductor Inc. (000660) added 1.6 percent in Seoul.

Strengthening Yuan

South Korea’s Kospi Index (KOSPI) was little changed, and the BSE India Sensitive Index fell 2.3 percent, its biggest daily decline since Feb. 27.

The yuan strengthened the most this year after the central bank announced measures to free up funds at lenders to spur economic growth. The currency rose 0.4 percent to 6.2997 per dollar in Shanghai, according to the China Foreign Exchange Trade System. That was the biggest increase since Dec. 30.

Asia’s largest economy boosted rural credit by cutting reserve-requirement ratios for an additional 379 branches of Agricultural Bank of China Ltd., the nation’s third-biggest lender by market value, the People’s Bank of China said on its website yesterday.

Recent data doesn’t necessarily signal that China is headed for a “hard landing”, George Iwanicki, who manages $4 billion of emerging market stocks at JPMorgan Chase & Co.’s asset management unit, said in an interview in New York. China’s economy will expand 7 percent to 8 percent this year, he said and emerging-market equities are undervalued, based on the ratio of price to book value, and have room to rally.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose two basis points, or 0.02 percentage point, to 328 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporters on this story: Zachary Tracer in New York at ztracer1@bloomberg.net; Jason Webb in London at jwebb25@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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