Emerging Stocks Fall as Commodities Push Russia to Bear Market

Emerging-market stocks fell as a plunge in commodities sent Russian and Brazilian equities tumbling and investors speculated China’s cut in banks’ reserve ratios won’t be enough to stem the economic slowdown.

The MSCI Emerging Markets Index dropped 2 percent to 952 by 4:31 p.m. in New York, the lowest since Jan. 16. Russia’s dollar-denominated RTS Index (RTSI$) declined, pushing the gauge into a bear market, while the Micex index fell to a seven-month low. Brazil’s Bovespa retreated 3.2 percent, the most since Sept. 22. Brookfield Incorporacoes SA (BISA3), the nation’s fourth-largest homebuilder by revenue, was the leading decliner in Brazil and on the emerging nations’ gauge.

Commodities dropped for a ninth day, extending their longest losing streak since 2008, as oil slumped to $94.78, the lowest level in almost five months. The announcement by the People’s Bank of China on May 12 that it’s cutting the amount of cash banks must set aside as reserves was deemed insufficient to support lending and stop an economic slowdown by Lars Christensen, chief emerging-market analyst at Danske Bank A/S.

“It’s a pretty bad day and the main problem is China,” Christensen said by phone from Copenhagen today. “China’s slowing down impacts commodity prices so commodities are now taking a beating. That’s certainly not good news for some of the major emerging markets like Russia and Brazil.”

‘Challenging’ Outlook

The MSCI Emerging Markets Index (MXEF) declined for an eighth straight week on May 11, its longest stretch of weekly losses since 2008. The index trades at 9.5 times estimated earnings and has added 3.9 percent this year, compared with the 11.9 multiple for the MSCI World Index (MXWO) of advanced nations, which has added 3.5 percent in 2012.

The Standard & Poor’s GSCI Spot Index of 24 raw materials slid 1.1 percent to 635.77, the lowest close since Dec. 20.

The IShares MSCI Emerging Markets Index (EEM) exchange-traded fund, the most-traded ETF tracking developing-nation shares, fell 2.3 percent to $39.06. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index (VXEEM), a measure of options prices on the fund and expectations of price swings, rose 7.8 percent to 31.37.

Indexes dropped in Poland, Hungary and the Czech Republic as concerns mounted that Greece will exit the single European currency. Greece’s political deadlock looked set to continue for a second week as President Karolos Papoulias failed to secure an agreement on a unity government.

“The outlook for global emerging markets continues to be quite challenging, with the deterioration of the backdrop in Europe,” Benoit Anne, head of emerging-markets strategy at Societe Generale SA in London, wrote in an e-mail to clients.

Leading Decliners

The RTS Index declined 3.6 percent, reaching the lowest since Jan. 2. The slide took the gauge down more than 20 percent from its 2012 closing high reached on March 15.

The Micex Index tumbled 3.5 percent in Russia, declining for a third day and reaching the lowest since Oct. 6. Federal Grid Co. dropped 7.2 percent to lead losses after Goldman Sachs cut the stock to sell from buy on concern it will acquire OAO MRSK Holding.

OAO Gazprom, the world’s biggest natural-gas producer, fell 5.3 percent to the lowest since Oct. 5, while OAO Lukoil, the country’s biggest non-state oil producer, tumbled 2.6 percent.

Brazil’s Bovespa (IBOV) fell to the lowest level in 2012 as Brookefield dropped 15 percent, the most since December 2008. The company reported that net income fell 94 percent on higher building costs and contract cancellations. PDG Realty SA Empreendimentos e Participacoes slipped 10 percent and was the second-biggest decliner.

Petroleo Brasileiro SA (PETR4), the Brazilian state oil company, lost 2.4 percent, falling to its lowest level since Oct. 20.

Poland, Hungary

The WIG20 Index (WIG20) slipped 1.9 percent in Poland, which sends most of its exports to the euro region, while Hungary’s BUX Index lost 1.8 percent. OTP Bank Nyrt. (OTP), Hungary’s largest lender, slid 2.4 percent.

The Hang Seng China Enterprises Index (HSCEI) of Chinese stocks listed in Hong Kong fell 1.5 percent, its eighth consecutive decline and its longest losing streak since March 26. Brokerages from Citigroup Inc. to JPMorgan Chase & Co. cut economic growth forecasts for China.

NCsoft Corp. (036570), which develops and markets online games and computer software, fell 12 percent in Seoul, the most since November 2008, after Blizzard Entertainment announced it would release video game Diablo III tomorrow.

Lira, Rand

The FTSE/JSE Africa All Shares Index (JALSH) fell 1.5 percent in Johannesburg. The ISE National 100 Index (XU100) retreated 1.7 percent in Turkey. The lira weakened 1.4 percent against the dollar after the Turkish central bank eased policy, offering funding at its lowest rate. The rand fell 1.4 percent for its fifth consecutive decline. The ruble weakened 0.9 percent.

The BSE India Sensitive Index (SENSEX) dropped 0.5 percent after inflation unexpectedly quickened in April, reducing the central bank’s scope to extend interest-rate cuts. The gauge’s five days of declines is its longest run of losses since December.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose 15 basis points, or 0.15 percentage point, to 380, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporters on this story: Christine Harvey in New York at charvey32@bloomberg.net; Jason Webb in London at jwebb25@bloomberg.net

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

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