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Emerging Stocks Head for Two-Week Low on Europe Concerns

Emerging-market stocks slid to the lowest level in two weeks, led by technology companies, on concern Europe’s debt crisis and slowing global growth will hurt exporters’ earnings.

The MSCI Emerging Markets Index (VXEEM) lost 0.5 percent to 992.09, the weakest close since Sept. 26. Technology companies sank the most among 10 industry groups. Usinas Siderurgicas de Minas Gerais slumped to the lowest in a month in Sao Paulo while Samsung Electronics Co. (005930) fell the most since August in Seoul, pacing declines by exporters. Russia’s Micex gauge retreated for a third day and South Korea’s Kospi slid to the lowest in a month.

European banks may need to sell as much as $4.5 trillion in assets through 2013 if policy makers fall short on pledges to stem the fiscal crisis, according to a report from the International Monetary Fund, which cut its 2012 global growth forecast yesterday to 3.3 percent. The projection compares with a $3.8 trillion estimate in April. China’s economic expansion slowed in the second quarter to 7.6 percent, as trade and manufacturing decelerated.

The IMF report was “an official reminder” that global growth is faltering, Marc Chandler, the global head of currency strategy at Brown Brothers Harriman & Co., said by phone from New York today. “The IMF downward revisions to growth forecast, the pessimism that’s still near about Europe in a recession, China slowing -- those are still baked in the cake, and it weighs on sentiment.”

The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF (EEM) tracking developing-nation shares, slid 0.6 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 0.9 percent.

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

Growth Forecast

Spain’s Prime Minister Mariano Rajoy is struggling to contain the country’s deficit as he met with French President Francois Hollande in Paris.

The IMF also lowered growth forecasts for emerging markets, where it said domestic factors add to external constraints. India’s economy may grow 4.9 percent this year and 6 percent next year, lower than previous forecasts of 6.2 percent and 6.6 percent respectively. China’s estimate was cut by 0.2 percentage point each year to 7.8 percent in 2012 and 8.2 percent in 2013.

“Markets are suffering from chronic lack of conviction at present,” Julian Rimmer, a trader at CF Global Trading in London, said by e-mail.

Brazilian steelmaker Usiminas fell 7.2 percent while Vale SA, the world’s largest iron-ore producer, dropped 1.2 percent.

Russia’s Micex Index lost 0.8 percent as OAO Gazprom, the world’s biggest natural-gas producer, declined 1.2 percent, retreating for a third day.

South Korea Index

South Korea’s Kospi (KOSPI) index sank 1.6 percent, the steepest drop since Sept. 5. The BSE India Sensitive Index (SENSEX) slumped 0.9 percent. Bharat Petroleum Corp. (BPCL) slipped 1.6 percent in Mumbai, its biggest drop in three weeks, as Indian oil refiners sank after the government released revenue loss estimates for the industry.

Hindustan Petroleum Corp. (HPCL) declined 2.5 percent. Indian refiners may lose 420 billion rupees ($7.9 billion) in the second quarter, Oil Secretary G.C. Chaturvedi said yesterday in New Delhi.

The Hang Seng China Enterprises Index (HSCEI) of mainland companies climbed 0.7 percent to the highest since May 15. Dongfeng Motor Group Co. (489) jumped 4.9 percent in Hong Kong, the most since Sept. 7 and leading Chinese carmakers higher after the China Securities Journal said the nation may expand rural vehicle subsidies, citing unidentified people.

BYD Co. (1211), the Chinese carmaker partly owned by Warren Buffett’s Berkshire Hathaway Inc., added 4.2 percent. Guangzhou Automobile Group Co. (2238) surged 4.5 percent.

Currencies

Seventeen of 25 emerging-market currencies weakened against the dollar, with the Mexican peso leading the losses.

India’s rupee declined for the fourth day, dropping 0.6 percent to 53.0588 per dollar in Mumbai.

South Korea’s government bond yields fell to record lows as economists forecast the central bank will reduce interest rates tomorrow for a second time this year to spur growth. The won fell 0.4 percent, retreating from an 11-month high.

Samsung Electronics, which got about 19 percent of its sales from Europe in 2011 and counts China as its biggest market, dropped 3.4 percent. SK Hynix Inc. (000660) declined 2.3 percent.

Tech Stocks

A gauge of technology companies dropped 1.4 percent, the biggest slide in the MSCI Emerging Markets Index. (MXEF)

The MSCI’s developing-nations measure has climbed 8.3 percent this year, trailing a 10 percent increase by the MSCI World Index. (MXWO) The emerging-markets index trades at 11.4 times estimated earnings, compared with the MSCI World’s multiple of 13.1, data compiled by Bloomberg show.

The extra yield investors demand to own emerging-market bonds over U.S. Treasuries climbed two basis points, or 0.02 percentage point, to 297, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporters on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net; Zahra Hankir in Dubai at zhankir@bloomberg.net

To contact the editor responsible for this story: Allen Wan at awan3@bloomberg.net

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