BRIC Stocks Head for Bear Market as Growth Woes Deepen

The MSCI BRIC Index fell, extending the gauge’ drop from this year’s high to more than 20 percent, on mounting concern that Europe’s debt crisis and slower U.S. economic growth will curb exports.

The benchmark index of shares in Brazil, Russia, China and India slipped 1.3 percent to 258.78 at the close of trading in New York, swelling its retreat to 21 percent from this year’s peak on March 2, a threshold analysts say marks a bear market. LLX Logistica SA, the port company controlled by Brazilian billionaire Eike Batista, led declines in the country’s Bovespa (IBOV) measure. Russia’s 30-stock Micex (INDEXCF) Index sank 3.5 percent, also entering a bear market. The 21-country MSCI Emerging Markets Index dropped to a four-month low.

An index of U.S. leading indicators unexpectedly fell in April, indicating the pace of economic expansion in the world’s largest economy may be slowing. Greece’s credit rating was downgraded one level by Fitch Ratings on “heightened risk” that the country will not be able to sustain its membership in the euro area while Moody’s Investors Service cut the credit ratings of 16 Spanish banks, citing economic weakness and the government’s mounting budget strain.

“Emerging markets had already been suffering their own headwinds and now they’re going to be buffeted by additional negative developments in the developed countries,” Komal Sri-Kumar, chief global strategist at TCW Group Inc., which oversees about $120 billion, said in a phone interview from Los Angeles. “China is facing a slowdown and inflation in India has shot up, making it hard for authorities there to cut rates. At the same time, Greece is on its way to a default. The immediate impact on emerging markets is negative.”

Greece Concerns

The MSCI Emerging Markets Index is heading for a ninth week of declines, its longest stretch of weekly losses since 1994. More than $3 trillion of global stock market value has been erased this month.

Brazil also entered bear market, as its benchmark gauge fell for an eighth day, the longest losing streak in more than 10 years, extending its decline since its recent high on March 13 to 21 percent. Rio de Janeiro-based LLX lost 7.5 percent to 2.48 reais, the lowest since 2009.

The developing nations’ index, up 0.5 percent this year, trades at 9.8 times estimated earnings, compared with 11.7 for the MSCI World Index of advanced nations, which has added 0.8 percent in 2012.

The Micex declined for the fifth day in six as OAO Sberbank lost 7.2 percent. The lender has the third-biggest weighting on the gauge at 14 percent. Polish stocks lost 3 percent as Kernel Holding SA, Ukraine’s biggest sunflower-oil producer, plunged 7.8 percent after cutting its profit outlook for the 2012 fiscal year.

South Africa, Poland

South Africa’s FTSE/JSE Africa All Share Index declined 0.8 percent. Investec Ltd. (INL), a banking group and fund manager with operations in South Africa, Australia and the U.K., retreated for a fourth day, dropping 2.3 percent after the company reported a 41 percent decline in full-year profit.

The MSCI EM Eastern Europe Index retreated 3.6 percent to 172.58 with Bank Pekao SA falling 3.9 percent in Warsaw.

Asian stocks rallied today on speculation China will take steps to boost economic growth and the Fed will do more to stimulate the U.S. economy.

China said it will allocate 26.5 billion yuan ($4.2 billion) in subsidies to promote the use of energy-saving household appliances and products, replacing a consumption-incentive program that ended last year. The nation will allocate a further 6 billion yuan of subsidies for purchases of vehicles with engines of less than 1.6 liters, it said.

Philippines, Taiwan

Japan’s economy expanded by a faster-than-estimated 4.1 percent in the first quarter, boosted by reconstruction spending that’s poised to fade just as a worsening in Europe’s crisis threatens to curtail export demand.

Singapore also reported a rebound in growth last quarter as gross domestic product increased by 10 percent, while warning about the risk of a disorderly European debt default.

The Philippine Stock Exchange Index surged 3.1 percent, the largest gain among its Asian peers, as it snapped a six-day slump. Taiwan’s Taiex added 1.7 percent and the BSE India Sensitive Index climbed 0.3 percent.

“It’s true that stocks are oversold in a short period of time, but uncertainties especially in Europe should linger on for a while,” said Chung Yun Sik, the Seoul-based chief investment officer for equities at ING Investment Management Korea Ltd., which oversees about $16 billion.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries advanced 7 basis points, or 0.07 percentage point, to 401, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporter on this story: Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.