Emerging Stocks Drop to 6-Month Low on China, U.S. Data

Emerging-market stocks fell, dragging the benchmark index to a six-month low, after China’s non- manufacturing sector grew at the slowest pace in more than a year and orders at U.S. factories unexpectedly fell.

The MSCI Emerging Markets Index fell 1.3 percent to 882.46, extending its decline over the past month to 13 percent. The index earlier touched 877.44, the lowest intraday price since Nov. 25. Hong Kong’s Hang Seng China Enterprises Index slumped 2.6 percent, trading 21 percent below its peak this year. Brazil’s Bovespa Index (IBOV) was little changed near a seven-month low as trading in Banco Cruzeiro do Sul SA was suspended after the central bank took over its management, citing “grave violations” of regulations.

China’s non-manufacturing purchasing managers’ index fell to 55.2 in May from 56.1 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday. U.S. factory orders dropped 0.6 percent in April, following a 2.1 percent decrease in March, the first back-to- back declines in more than three years, the Commerce Department said. In Europe, leaders remain divided on solutions for the region’s debt crisis.

‘Perfect Storm’

“Elements of a perfect storm are emerging in the market, driving investors to take money off the table and raise cash,” said Paul Joseph Garcia, who helps manage about $17 billion at BPI Asset Management Inc. “Data from the U.S. and China combined with Europe’s debt crisis are feeding fears of a global slowdown.”

The MSCI Emerging Markets Index (MXEF) has retreated 3.7 percent this year, compared with a 2.7 percent drop in the MSCI World Index. Shares in the emerging-markets gauge are trading at 9.7 times estimated earnings, cheaper than the MSCI World’s multiple of 11.4, according to data compiled by Bloomberg.

The Bovespa entered a bear market on May 17 after tumbling 21 percent from this year’s high on March 13. The gauge trades at 9.1 times analysts’ earnings estimates for the next four quarters, near the lowest since January, data compiled by Bloomberg show.

‘Violated Rules’

Banco Cruzeiro, the payroll lender based in Sao Paulo, was suspended after plunging 40 percent last week. Brazil’s deposit insurance fund, known as FGC, will manage the bank for 180 days, the central bank said in a statement today. Cruzeiro “violated financial-system rules” and a central-bank review found insufficient assets, according to the statement.

Mexico’s benchmark IPC index fell 0.3 percent to a two-week low. Grupo Elektra SA (ELEKTRA*) , the retail and banking company controlled by billionaire Ricardo Salinas, fell 5.6 percent to 451.73 pesos. Shares have lost 30 percent since MSCI Inc. said May 15 that it would remove Elektra from its indexes effective May 31.

A measure tracking technology stocks on MSCI’s emerging- markets index sank 3.4 percent today, the most among 10 industry groups. Samsung Electronics (005930) Ltd. fell 3 percent in Seoul, while Taiwan Semiconductor Manufacturing Co. (2330), the world’s largest custom maker of chips, slid 4.3 percent in Taipei, capping a two-day, 10 percent loss that’s the biggest since July 2008.

Hungary’s forint lead a gain of emerging market currencies today after a vote on a central bank law was delayed for more time to reach a consensus with the International Monetary Fund on its content. The forint rose 1.5 percent to 241.74 per dollar.

Fall Short

The government delayed the vote after the IMF and the European Central Bank last week said the amendments fall short of ensuring central bank independence. The failure to change the disputed law has blocked talks on a bailout which Hungary requested in November.

The lira strengthened 0.4 percent to 1.8516 per dollar after Turkey’s inflation slowed in May the most since January 2003.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries declined 10 basis points, or 0.1 percentage point, to 431, according to JPMorgan Chase & Co.’s EMBI Global Index.

The Hang Seng China Enterprises Index, which tracks the largest mainland companies listed in Hong Kong, traded at 7.2 times estimated earnings, compared with 8.8 times on Feb. 22. Lonking Holdings Ltd. (3339), a Chinese construction machinery maker, plunged 10 percent in Hong Kong after forecasting lower profit.

JPMorgan Chase & Co. cut China’s 2012 growth forecast to 7.7 percent from its previous estimate of 8 percent, citing increasing downside risks in the euro area. Europe is China’s biggest export market, making up about 18 percent of the nation’s overseas shipments, according to Shenyin & Wanguo Securities Co.

To contact the reporters on this story: Ian Sayson in Manila at isayson@bloomberg.net Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net

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

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