Emerging-market stocks declined for the first time in five days as falling crude-oil prices dragged producers lower and China’s service industries expanded at the weakest pace in more than a year.
The MSCI Emerging Markets Index (MXEF) slid 0.4 percent to 1,002.50. Brazil’s Bovespa stock index (VXEEM) dropped 1 percent, with power company Cia. Energetica de Sao Paulo and state-controlled oil producer Petroleo Brasileiro SA falling. Russian oil company OAO Tatneft (TATN) declined 2.2 percent, after profit sank 17 percent in the first half. PetroChina Co., China’s biggest oil producer, slid 1 percent. Indexes in Russia, Turkey and Mexico retreated.
Oil fell below $90 a barrel in New York after U.S. crude stockpiles climbed for a fourth week and concern rose that demand will decline as the Chinese economy weakens. China’s non- manufacturing purchasing managers’ index slid to 53.7 from 56.3 in August, according to official reports today, underscoring a slowdown that spurred the Asian Development Bank to lower its 2012 regional growth estimate.
“The Chinese PMI figure was not fantastic, and even though services is not a main sector in China, it has some negative impact,” Guillaume Tresca, a senior emerging market strategist at Credit Agricole Corporate & Investment Bank, said in a phone interview from Paris. “Falling oil prices may lead the market lower in the short term, but it provides emerging market central banks with some leeway to carry out rate cuts.”
The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF (EEM) tracking developing-nation shares, slid 0.7 percent. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, declined 1.2 percent.
China’s non-manufacturing industries expanded at the weakest pace since at least March 2011 as officials struggle to reverse a slowdown in the world’s second-biggest economy. The ADB cut its forecast for Chinese economic growth to 7.7 percent this year from a previous estimate of 8.2 percent. The Manila- based lender also said downside risk for China’s economy may intensify in the short term.
“China is the main driver today,” Peter Westin, chief equity strategist at Aton Capital in Moscow, said by e-mail. “Commodities are reacting negatively to data out of China, suggesting further economic slowdown.” Copper and zinc futures dropped.
The Bovespa index fell to the lowest since Sept. 10. Cia. Energetica de Sao Paulo, or Cesp as the state-controlled power company is known, dropped 5.1 percent after Folha de S.Paulo reported that Sao Paulo gave up plans to sell its stake in the utility. In a phone interview with Bloomberg News today, Planning Secretary Julio Semeghini, who was cited in the story, said that the state decided not to include proceeds from the sale in its 2013 budget. It still plans to carry on with the deal when market conditions are more “favorable,” he said. Petrobras lost 1.6 percent.
Russia’s Micex Index fell for a second day, losing 0.9 percent. Taiwan’s Taiex Index (TWSE) lost 0.4 percent. The BSE India Sensitive Index, or Sensex, gained 0.2 percent amid optimism the government will undertake measures to revive growth.
Emerging market equities will gain 15 percent next year, Citigroup Inc. analysts led by Geoffrey Dennis wrote in a report today. “While earnings forecasts have been falling steadily, valuations still look attractive,” they said. “Our top market picks are Korea, China, Thailand, Peru and the Czech Republic.” The analysts cut their rating on South Africa to neutral on higher political risk.
The South African rand depreciated 0.8 percent versus the dollar, the worst performer among emerging market currencies tracked by Bloomberg. The Polish zloty erased losses, strengthening 0.6 percent after the central bank unexpectedly left interest rates unchanged today.
Construction materials and energy companies were the biggest losers on the MSCI Emerging Markets Index today. The broader measure has risen 9.4 percent this year, trailing a 12 percent increase in the MSCI World Index (MXWO) of developed countries.
The extra yield investors demand to own emerging-market dollar bonds over U.S. Treasuries slid four basis points, or 0.04 percentage point, to 300, according to JPMorgan’s EMBI Global Index.