Emerging Stocks Fall to Lowest in Two Weeks on IMF, Spain

Emerging-market stocks retreated to the lowest level in two weeks on concern Spain’s failure to respond to a bailout package will worsen Europe’s credit crisis, crimping demand for developing-nation exports.

The MSCI Emerging Markets Index (MXEF) slid 0.1 percent to 996.59, the lowest level since Sept. 26. Brazil’s Bovespa index (MXBR0FN) declined for the first time in three days as Itau Unibanco Holding SA (ITUB4), Latin America’s biggest bank by market value, dropped to the lowest since July. Equity gauges in South Korea, Hungary and South Africa fell. Industrial & Commercial Bank of China Ltd. rallied after state-run Central Huijin Investment Ltd. raised its ownership in the lender.

The International Monetary Fund cut its global growth forecast this year to 3.3 percent, the slowest since 2009. Spain has yet to respond to the European Central Bank’s offer to buy its debt to lower unsustainable borrowing costs. The decision to apply for ECB intervention is “important and sensitive,” Economy Minister Luis de Guindos told reporters in Luxembourg today. The European Union accounts for a third of the exports from companies on the developing nations’ gauge.

“The big medium-term question is global growth,” Phillipe Langham, who helps oversee about $1.4 billion at RBC Global Asset Management, said by telephone from London. “I don’t think that anyone believes that the issues facing Europe are over.”

The iShares MSCI Emerging Markets Index (VXEEM) 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, jumped 6.5 percent.

Brazil, India

The Bovespa index lost 0.6 percent as Itau slid 2.5 percent to the lowest since July 23. The MSCI Brazil Financials Index retreated 2.3 percent to the lowest in two months.

India’s Sensex advanced 0.5 percent to 18,793.36, paring yesterday’s losses. The Istanbul Stock Exchange National 100 Index added 0.9 percent, the fourth day of gains. Poland’s WIG20 Index fell for a second day, losing 1 percent.

OAO Lukoil, Russia’s biggest non-state oil company, climbed for a third day, adding 0.6 percent. Iraq approved the company’s plans for exploration, development and production. Crude increased 3.2 percent after dropping in the past two days.

IMF Outlook

The IMF cut its growth outlook from a 3.5 percent prediction in July. The Washington-based lender now sees “alarmingly high” risks of a steeper slowdown, with a one-in- six chance of growth slipping below 2 percent.

The Spanish economy will shrink 1.3 percent next year, more than the prediction it made in July, the IMF said.

“There’s more and more concern about the Spanish bailout as they haven’t asked for one yet,” Dave Lutz, head of exchange-traded fund trading at Stifel Nicolaus & Co., said yesterday by phone from Baltimore. “Emerging market assets are going to react to developments in Spain.”

ECB President Mario Draghi said that Greece must continue with policy reforms after making “perceptible” progress so far. He also said the central bank’s prospective Outright Monetary Transactions are unlimited without being unconditional. Draghi was speaking at the European Parliament in Brussels today.

China Gains

The developing nations’ gauge has climbed 8.8 percent this year, trailing an 11 percent increase in the MSCI World Index of developed countries. The emerging-markets gauge trades at 11.3 times estimated earnings, compared with the MSCI World’s multiple of 13.2, data compiled by Bloomberg show.

The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong rose 1.3 percent to the highest level since May 15.

Industrial & Commercial Bank of China, the world’s largest lender by value, advanced 1.5 percent in Hong Kong, the most in two weeks. Central Huijin raised its ownership in the lender to 35.43 percent as of Sept. 30, the Beijing-based lender said.

“Huijin’s stake in ICBC shows that the government fund thinks prices of bank stocks are reasonable,” said Zhang Yanbin, an analyst with Zheshang Securities Co. in Shanghai. “This boosts sentiment in the market.”

HTC Corp. (2498), Asia’s second-largest smartphone maker, slid 7 percent, the most since July 5. The Taiwanese company’s third- quarter profit sank by a record 79 percent to NT$3.9 billion ($133 million) as competition drove down sales.

China Molybdenum Co. (603993), the nation’s second-largest producer of the metal by market value, surged more than threefold on its first day of trading in Shanghai, prompting the stock exchange to suspend the shares.

The extra yield investors demand to own emerging-market dollar bonds over U.S. Treasuries rose 6 basis points to 294 basis points, according to JPMorgan’s EMBI Global Index.

To contact the reporters on this story: Maria Levitov in London at mlevitov@bloomberg.net; Sridhar Natarajan in New York at snatarajan15@bloomberg.net;

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

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