Emerging Stocks Drop Most in Three Weeks on China Data

Emerging-market stocks dropped the most in four weeks as data signaled China’s manufacturing in June may contract for an eighth month and as commodities slumped.

The MSCI Emerging Markets Index (MXEF) retreated 1.7 percent to 932.36 in New York, the biggest decline since May 23. Brazil’s Bovespa (IBOV) index sank 2.9 percent, led by Brasil Foods SA, the world’s biggest poultry exporter, and oil company OGX Petroleo & Gas Participacoes SA, as the S&P GSCI commodities gauge slid to the lowest level since 2010. The Shanghai Composite Index (SHCOMP) sank to the lowest level since March 29. Indian shares gained as JPMorgan Chase & Co. upgraded the nation’s equities.

A preliminary reading for a purchasing managers’ index from HSBC Holdings Plc and Markit Economics showed China’s manufacturing may shrink this month. Euro-area services and manufacturing output contracted for a fifth month in June, suggesting the economy may fail to grow in the current quarter. Federal Reserve Bank of Philadelphia’s economic index signaled the worst contraction in manufacturing in almost a year.

“This will be perceived as short-term negative for risky assets, including global emerging markets,” Esther Law, a London-based director of emerging-markets strategy at Societe Generale SA, said in an e-mail. “Conditions of China’s manufacturing sector, especially the small- and medium-sized factories, continued to slip. The Fed just did the bare minimum with simply an extension of the operation twist.”

China PMI

The 48.1 preliminary reading for Chinese PMI compares with a final 48.4 for May. A reading above 50 indicates expansion. If confirmed on July 2, it would equal the run of below-50 readings from August 2008 to March 2009. A composite index based on a survey of purchasing managers in both manufacturing and services industries in the 17-nation euro area was stable at 46, the same reading as in May, Markit said.

The Philadelphia Fed’s general economic index fell to minus 16.6 in June, the lowest level since August, from minus 5.8 the previous month. Economists forecast the gauge would improve to zero, the dividing line between growth and contraction, according to the median estimate in a Bloomberg News survey.

The MSCI Emerging Markets gauge has added 1.7 percent in 2012 and trades at a multiple of 10.1 times estimated earnings, compared with 11.9 for companies on the developed-nation index, which has gained 2.1 percent this year, according to data compiled by Bloomberg.

All 10 industry groups on the MSCI gauge declined, with energy and information technology leading the retreat. The S&P GSCI commodities index sank 2.8 percent to the weakest since October 2010.

Ruble Weakens

The ruble depreciated 1.3 percent versus the dollar as oil, Russia’s biggest export earner, tumbled 4 percent to $78.20 a barrel on the New York Mercantile Exchange, the lowest settlement since Oct. 4. The price is down 21 percent in 2012.

The ISE National 100 Index (XU100) gained 1.8 percent in Turkey, whose sovereign debt was upgraded to one level below investment grade by Moody’s Investors Service yesterday. Turkiye Garanti Bankasi AS (GARAN), the country’s biggest listed lender, jumped 2.4 percent.

The country left its so-called interest rate corridor unchanged as it seeks to support the lira and slow inflation.

The Hang Seng China Enterprises Index (HSCEI) of Chinese companies listed in Hong Kong slid 1.6 percent, the steepest decline in more than two weeks. Lenovo Group Ltd. (992), the world’s second- biggest maker of personal computers, tumbled 9.4 percent, the most since February 2010, after China Times said the company lowered its guidance for shipment growth this year.

Dongyue Group (189) plunged 9.4 percent after the Chinese chemical maker said its profit for the six months ending June 30 may decrease as the global economic slowdown cut demand for its products.

Greek Review

Brasil Foods sank 5.9 percent as Brazil’s Bovespa retreated the most in five weeks. OGX, the oil company controlled by billionaire Eike Batista, lost 5.6 percent to extend its decline for June to 11 percent.

Shanghai’s Composite Index fell for a third day, losing 1.4 percent. The WIG20 Index dropped for a second day in Warsaw, losing 0.7 percent.

South Korean’s Kospi Index and Taiwan’s Taiex Index (TWSE) fell 0.8 percent as the two nations failed to win an upgrade to developed market status from MSCI Inc. SK Innovation Co. (096770), South Korea’s largest crude oil refiner, dropped 3.3 percent as emerging-market energy stocks fell the most in a month.

Greece’s stock market was put under review for reclassification to emerging markets by MSCI, a change that would make the European Union nation the first advanced country to be cut to developing status. Qatar and the United Arab Emirates will keep their frontier classification, MSCI said in a statement yesterday.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose two basis points, or 0.02 percentage point, to 383, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporters on this story: Anuchit Nguyen in Bangkok at anguyen@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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