Most Emerging Stocks Drop on Europe as Bovespa Retreats

Emerging-market stocks fell, with Brazil’s Bovespa index (VXEEM) dropping the most since July 10, on concern global growth will falter following discord on a debt crisis resolution in Europe and a further slowdown in China.

The MSCI Emerging Markets Index (MXEF) slid 0.3 percent to 1,001.85. Brazil’s Bovespa stock index lost 2.3 percent with Usinas Siderurgicas de Minas Gerais SA (USIM5) leading the decline. The Hang Seng China Enterprises Index (HSCEI) of mainland companies slipped 0.2 percent as banks dropped after China’s money market rate surged to a three-month high. Benchmark indexes in Russia, South Africa and Hungary dropped.

Disagreement has widened over how to stem Europe’s debt woes, with discord on the establishment of a banking union, Spain’s indecision on whether it needs a full rescue and discussions in Greece on how to meet bailout commitments. Developing nations send about 30 percent of their exports to the European Union on average, according to data compiled by the World Trade Organization. Standard & Poor’s cut its outlook for China’s economic expansion yesterday.

“Investors are waiting for Spain to ask for a bailout and we are not seeing much for now, and markets are always concerned about the slow European Union decision-making process,” Gaelle Blanchard, an emerging-markets strategist at Societe Generale SA, said by phone from London. “At the same time, concerns about the global growth outlook are still there.”

The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF (EEM) tracking developing-nation shares, driooed 1.5 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 12 percent.

Brazil, China

The Bovespa retreated the most since plunging 3.1 percent on July 10. Usinas, Brazil’s second-biggest steelmaker by output, tumbled 11 percent after Goldman Sachs Group Inc. cut its recommendation to the equivalent of hold from buy. Cia. Siderurgica Nacional SA, known as CSN, dropped 8.8 percent as a person with direct knowledge of the matter said it hired Bradesco BBI to advise on an acquisition of ThyssenKrupp AG’s steel plant in Rio de Janeiro state.

China Shipping Development Co., a unit of China’s second- biggest sea-cargo group, slid 5.4 percent. China Construction Bank (601939), the nation’s second-biggest listed lender, dropped 0.5 percent in Shanghai. China Minsheng Banking Corp. sank 0.7 percent.

S&P cut its 2012 forecast for China’s growth by half a percentage point to 7.5 percent, saying the government has not introduced stimulus sufficient to sustain an 8 percent growth rate. The government is concerned about re-igniting inflation and a property bubble, the ratings company said in a statement yesterday.

Repurchase Rate

The Chinese central bank added a record 290 billion yuan ($46 billion) to the financial system by using reverse- repurchase agreements, seeking to address a cash squeeze in the run-up to a weeklong holiday.

The seven-day repurchase rate, which measures interbank funding availability, gained 19 basis points to 4.7 percent in Shanghai, the highest level since June 28, according to a weighted average compiled by the National Interbank Funding Center.

Russia’s Micex Index dropped 0.5 percent, reversing earlier gains. Hungary’s BUX Index (BUX) of stocks lost 0.2 percent, while South Africa’s FTSE/JSE Africa All Share Index (JALSH) fell for a third day, sliding 0.5 percent.

Anglo American Plc (AGL) declined 2.7 percent after Caterpillar Inc. (CAT), the world’s biggest construction and mining equipment maker, cut its forecast for 2015 earnings.

Profit Forecast

Caterpillar said profit will be $12 to $18 a share, compared with a previous projection of $15 to $20, after commodity producers reduced capital expenditures.

The broader developing nations gauge has climbed 9.3 percent this year, trailing a 12 percent increase in the MSCI World Index of developed countries. The emerging-markets measure trades at 11.3 times estimated earnings, compared with the MSCI World’s multiple of 13.4, according to data compiled by Bloomberg.

LG Display Co. (034220) and LG Electronics Inc. (066570) dropped in Seoul after brokerages downgraded the stocks on valuation concerns. South Korea’s Kospi index lost 0.6 percent and the Shanghai Composite Index (SHCOMP) slid 0.2 percent.

LG Display fell 2.8 percent, the biggest decline since July 25. The stock was cut to market-perform from outperform at Sanford Bernstein & Co. LG Electronics sank 5.4 percent. The company was downgraded to underperform from neutral at Credit Suisse Group AG.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries increased three basis points to 303, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact Bloomberg News staff for this story: Stephen Gunnion in Johannesburg at sgunnion@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 Vernon Wessels at vwessels@bloomberg.net

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