Emerging Stocks Fall for Third Day on Worsening Europe Crisis

Emerging-market stocks dropped for a third day as concern Europe’s debt crisis is worsening overshadowed signs of improvement for China’s manufacturing.

The MSCI Emerging Markets Index (MXEF) fell 0.3 percent to 909.43 in New York, its lowest close since June 28. Brazil’s Bovespa (IBOV) index also dropped for a third day as Vale SA, the world’s biggest iron-ore producer, fell the most since October. OAO Gazprom, the world’s biggest natural gas exporter, declined 1.8 percent in Moscow, leading energy companies lower on the emerging markets index.

Moody’s Investors Service cut the outlook to negative for the Aaa credit ratings of Germany, the Netherlands and Luxembourg, citing “rising uncertainty.” A preliminary reading of manufacturing in China was 49.5 in July, which if confirmed would be the highest since February, according to a purchasing managers index compiled by HSBC Holdings Plc and Markit Economics. A reading under 50 indicates contraction.

“It’s going to take more than one decent Chinese number to heal perceptions of an uncertain global economic outlook,” Alec Young, a global equity strategist at S&P Capital IQ, said in a telephone interview from New York. “Until the growth outlook for Europe and the U.S. becomes clearer, it will be very difficult to get a sustained rally in emerging markets.”

The MSCI Emerging Markets/Energy Index (MXEF0EN) slid 1.1 percent. The MSCI Emerging Markets Index has slid 3 percent this month, compared with a 2.7 percent decline by the MSCI World Index. (MXWO)

Cnooc Ltd. (883), China’s largest offshore oil and natural-gas explorer, fell 4 percent in Hong Kong, the most since May 7, on concern the company is overpaying in its $15.1 billion acquisition of Nexen Inc. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong declined 0.6 percent.

Gazprom

The Micex Index slipped 0.5 percent in Russia. Gazprom fell for the third day while OAO Severstal, Russia’s second-largest steel producer by output, lost 2.1 percent.

OAO Rosneft, Russia’s biggest oil producer, dropped 0.4 percent after the company began talks to buy BP Plc’s stake in TNK-BP, adding another bidder for the U.K. producer’s shares in the Moscow-based venture.

Vale tumbled 4.7 percent, the most since Oct. 17, as commodities fell. Cia. Brasileira de Distribuicao Grupo Pao de Acucar, Brazil’s biggest retailer, lost 1.9 percent as concern mounted that increased competition is eroding profits at its electronics subsidiary.

The Mexican peso depreciated 0.9 percent against the dollar and the rand weakened 0.7 percent. Spain’s benchmark 10-year bond yield reached a euro-era record today amid concern the nation may require a second bailout.

South Africa, Turkey

The FTSE/JSE Africa All Share Index (JALSH) added 0.5 percent in Johannesburg and the ISE National 100 Index (XU100) gained 0.9 percent in Turkey. Turkiye Halk Bankasi AS (HALKB), Turkey’s biggest listed state-run bank, advanced 2.6 percent after reporting higher second-quarter profit.

The Shanghai Composite Index (SHCOMP) rose from its lowest level since 2009, adding 0.2 percent. The Taiex Index (TWSE) lost 0.3 percent in Taipei. Vietnam’s VN Index (VNINDEX) tumbled 1.5 percent, the most since July 9.

“While signs of an acceleration in Chinese economic growth would prove positive for the global growth outlook, it still faces significant downside risks from the escalating euro-zone sovereign debt crisis,” Lee Hardman, an analyst at Bank of Tokyo-Mitsubishi UFJ in London, wrote in an e-mailed note to clients.

The Sensitive Index, or Sensex (SENSEX), added 0.2 percent in Mumbai. Hindustan Unilever Ltd. (HUVR), a unit of the world’s second- largest consumer goods company, jumped 7.5 percent, after first- quarter net income rose.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose five basis points, or 0.05 percentage point, to 368, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporters on this story: Leon Lazaroff in New York at llazaroff@bloomberg.net; Jason Webb in London at jwebb25@bloomberg.net

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