Emerging-Market Stocks Retreat on Europe, China Demand Outlook

Emerging-market stocks dropped for a third time in four days as a wider-than-estimated Japanese trade deficit fueled concern a slowing global economy will curb export earnings even as Federal Reserve meeting minutes showed many policy makers backed more monetary easing soon.

The MSCI Emerging Markets Index (MXEF) slid 0.6 percent to 969.43, the most since Aug. 13. Samsung Electronics Co. (005930), the world’s largest maker of computer memory chips, fell to a two-week low in Seoul after Dell Inc. (DELL) cut its profit forecast. Hyundai Heavy Industries Co., the world’s largest shipbuilder, sank the most in a month. Brazil’s Bovespa stock index gained 0.8 percent, with homebuilder Brookfield Incorporacoes SA leading the gains.

Japan’s trade deficit widened in July as shipments to the European Union fell 25 percent from a year earlier, the biggest decline since October 2009, while those to China slipped 12 percent, data today showed. The developing nations’ gauge trimmed its losses after records of the Federal Open Market Committee’s July 31-Aug. 1 gathering showed that “many members” believed more monetary accommodation would be needed fairly soon unless the pace of the economic recovery picks up.

‘Weak Growth’

“The Japanese trade data reinforces the idea that we are seeing recession in Europe and increasingly weak growth in China,” Alec Young, a global equity strategist at S&P Capital IQ, said by phone from New York. “Risk assets like emerging market equities tend to trade on confidence in global growth.”

The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF (EEM) tracking developing-nation shares, was little changed at 40.41. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, declined 2.4 percent.

Brookfield added 8.9 percent.

German Chancellor Angela Merkel and French President Francois Hollande meet tomorrow to discuss Europe’s fiscal crisis, and both are set to talk separately with Greece’s Prime Minister Antonis Samaras later this week. Concessions are possible for Greece if Samaras shows a willingness to meet the main targets set out in his country’s bailout program, a senior lawmaker with Merkel’s government said yesterday.

Sales of existing homes in the U.S. rose 2.3 percent in July to a 4.47 million annual rate, according to data from the National Association of Realtors. The median forecast of 73 economists surveyed by Bloomberg News called for a rise to a 4.51 million pace.

Outbound Shipments

The 21 nations in MSCI’s developing-nations gauge send about 30 percent of their exports to the European Union on average, data compiled by the World Trade Organization show.

The index has increased 5.8 percent this year, compared with an 8.9 percent gain by the MSCI World Index (MXWO) of developed nations. The gauge of developing nations trades at 10.4 times estimated profit, compared with the MSCI World’s multiple of 13.1, data compiled by Bloomberg show.

Vietnam’s benchmark VN Index slumped for a second day, losing 1.6 percent. The gauge plunged the most in almost four years yesterday as Vietnam’s arrest of Nguyen Duc Kien, the founder of several banks, sparked concern about the vulnerability of the country’s financial system.

The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong closed 1.3 percent lower. The Shanghai Composite Index lost 0.5 percent, the most in a week.

Dongfang Electric sank 4.8 percent, its steepest drop since July 24, after saying first-half net income fell 19 percent. China BlueChemical (3983) plunged 5.5 percent as first-half profit slid to 908.5 million yuan ($143 million).

Samsung, Lenovo

“The Chinese economy is only at the beginning of a harsh winter,” Zhang Hongxia, chairman of Weiqiao Textile Co., China’s largest cotton-textile maker , said in an interview in Hong Kong on Aug. 20. “China now is facing a situation where everything from coal to steel inventories are piling up.”

Samsung Electronics fell 1.4 percent in Seoul, a fourth day of losses. Lenovo Group Ltd. (992), the world’s second-biggest maker of personal computers, lost 2.7 percent in Hong Kong.

Dell forecast third-quarter revenue will drop 2 percent to 5 percent from the prior three-month period.

Geely Automobile Holdings Ltd. (175) tumbled 5.9 percent in Hong Kong as it forecast a “more challenging” second half of the year. Bharti Airtel Ltd. (BHARTI), India’s largest mobile-phone operator, sank 3.8 percent after Credit Suisse downgraded the stock to underperform.

The extra yield investors demand to own emerging-market bonds over U.S. Treasuries rose six basis points, or 0.06 percentage point, to 319, according to JPMorgan Chase & Co.’s EMBI Global Index. (VXEEM)

To contact the reporters on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net; Sridhar Natarajan in New York at snatarajan15@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@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.