Emerging Stocks Drop as Europe Crisis Talks Deadlocked

Developing-nation stocks fell, led by energy companies, as oil retreated and European leaders disagreed on ways to address the region’s debt crisis.

The MSCI Emerging Markets Index (MXEF) slipped 0.2 percent to 1,004.37. The ruble weakened 0.4 percent against the dollar, while emerging-market borrowing costs rose. OAO Gazprom, Russia’s gas-export monopoly, slid in Moscow as the benchmark Micex index (VXEEM) fell for a second day. Brazil’s Bovespa index rose with oil company OGX Petroleo & Gas Participacoes SA rising 5.1 percent.

German Chancellor Angela Merkel and French President Francois Hollande clashed over the weekend on a timetable for starting joint oversight of banks in the European Union, which buys about 30 percent of the exports from countries in the MSCI developing nations gauge. The disagreement curbed investor optimism after the European Central Bank’s new bond-buying plan helped send the MSCI index to a four-month high on Sept. 14.

“There was this illusion that now maybe policy makers in the euro zone may come to an agreement and there will be no dispute,” Michael Ganske, head of emerging-market research at Commerzbank AG, said by phone from London. “The coordinated central bank behavior we have seen to stabilize international markets is necessary but isn’t sufficient. Fundamentals are not really improving and the euro zone crisis is now once more coming up to the surface and investors are getting nervous.”

The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF (EEM) tracking developing-nation shares, declined 0.1 percent. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, rose 0.6 percent.

The Bovespa increased for the second time in six days, adding 1 percent. Iron-ore producer Vale SA advanced 0.4 percent, gaining for the first time in four days.

September Gain

The MSCI gauge has climbed 6 percent in September, poised for the best month since January. The gauge is valued at 11.3 times estimated earnings, compared with the average multiple of 13.4 for the MSCI World Index. (MXWO)

Russia’s Micex Index dropped 0.4 percent to the lowest level since Sept. 13 and the BSE India Sensitive Index slipped 0.4 percent. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong retreated 0.4 percent, while the Shanghai Composite Index rallied 0.3 percent.

The extra yield investors demand to own emerging-market dollar bonds over U.S. Treasuries increased three basis points, or 0.03 percentage point, to 297, according to JPMorgan’s EMBI Global Index.

Oil Slump

Gazprom retreated to the lowest level since Sept. 6 and OAO Lukoil, Russia’s second-biggest oil producer, rose 0.1 percent. A gauge of energy companies in the MSCI emerging-market index lost 0.6 percent for the largest slide among 10 industries. Oil futures sank 1 percent in New York while copper lost 1.5 percent.

Merkel rebuffed appeals by Hollande to activate oversight of the euro zone’s banking union “the earlier, the better.”

Financial markets “that are watching Europe want to see results,” Merkel said at the Sept. 22 meeting of the two leaders near Ludwigsburg, Germany, celebrating the two nations’ reconciliation after World War II. Still, “it has to be thorough, the quality has to be good and then we’ll see how long it takes,” she said.

Bumi Resources slumped the most since October 2008 and posted the biggest decline in the MSCI emerging-market index. Bumi Plc (BUMI), the London-listed Indonesian coal venture founded by Nathaniel Rothschild, began a probe into alleged irregularities at associated companies including Bumi Resources, Bumi said in a statement today. Bumi has a 29 percent stake in Bumi Resources.

Shanghai Rally

United Spirits Ltd. (UNSP), the whiskey maker controlled by billionaire Vijay Mallya, jumped 6.1 percent in Mumbai. People familiar with the matter said Diageo Plc, the world’s biggest distiller, may buy a stake.

The Shanghai Composite index rose for a second day, closing at 2,033.19. Regulators may introduce “concrete” measures to boost the stock market should the gauge fall below the 2,000 level, according to a Sept. 21 report by Shenyin & Wanguo Securities Co., ranked No. 1 for equity strategy research by New Fortune magazine in 2010.

The China Securities Regulatory Commission will implement measures to raise the level of returns for investors in capital markets, the Securities Daily reported today, citing Zhang Yujun, assistant chairman at the regulator.

To contact the reporters on this story: Michael Patterson in London at mpatterson10@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

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