Emerging Stocks Slump as Brazil’s Eletrobras Leads Drop

Emerging-market stocks fell for the first time in five days, led by Brazilian utilities, as the government provided less compensation for power rate cuts than analysts predicted. Hyundai Motor Co. sank after promising to remunerate U.S. customers for overstating fuel efficiency.

Centrais Eletricas Brasileiras SA (ELET6), South America’s largest power producer, slid to a seven-year low, the second-worst performer of the MSCI Emerging Markets Index. Hyundai Motor Co. and Kia Motors (000270) Corp. tumbled in Seoul after saying they will compensate U.S. customers for overstating the fuel efficiency of their latest models. Turkey’s lira and bonds rallied after Fitch Ratings upgraded the country to investment grade for the first time since 1994.

The MSCI gauge fell 0.4 percent to 1000.80 at the close of trading in New York, halting a four-day, 1.5 percent advance. Brazil’s government proposed compensating utilities a total of about 19 billion reais ($9.3 billion) for the renewal of electricity concessions due to end by 2017, trailing analyst estimates. Emerging stocks also declined as Americans prepared to vote for president.

“Utilities are obviously weak in Brazil as they’ve been pressured by regulatory headwinds,” Tim Hall, who helps manage about $750 million at Deltec Asset Management, said by phone from New York. “You have a big election in the U.S. tomorrow, and people are not excited to do a lot ahead of that.”

Turkey Upgraded

Fitch raised Turkey’s credit rating one level to BBB-, the lowest investment grade, citing a “moderate and declining government debt burden” and easing risks with the economy heading for a “soft landing,” according to a statement today.

The lira appreciated 0.6 percent versus the dollar to the strongest level in almost three months and local two-year government bonds also rose, reducing the yield 11 basis points, or 0.11 percentage point, to 6.94 percent. The Istanbul Stock Exchange National 100 (XU100) surged 1.8 percent to a record high.

Brazil’s Bovespa Index (IBOV), which was closed for a holiday on Nov. 2, slipped 0.3 percent. The MSCI Brazil Utilities Index fell the most among 10 industry groups, dropping 2.3 percent.

Eletrobras, as Centrais Eletricas is known, sank 8.2 percent to the lowest level since August 2005. Cia Energetica de Sao Paulo, known as Cesp, fell 5.8 percent.

The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF tracking developing-nation shares, gained 0.5 percent. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, jumped 5.2 percent.

Consumer Stocks

Consumer discretionary companies were the worst performers among 10 industry groups in the MSCI Emerging Markets Index (MXEF), falling by 1.9 percent. A gauge of utility companies dropped 0.6 percent. The broader index has climbed 9.2 percent this year, trailing a 10 percent increase in the MSCI World Index (MXWO) of developed country stocks.

The developing-markets gauge trades at 11.5 times estimated profit, compared with the MSCI World’s multiple of 13.3, data compiled by Bloomberg show.

Data last week showed American employers hired more workers than forecast in October. The 21 countries with companies in the MSCI emerging stocks index send 13 percent of their exports to the U.S. on average and 30 percent to the European Union, data from the World Trade Organization show.

Rupee Slumps

India’s rupee weakened 1.5 percent against the dollar to the lowest level since Sept. 13, leading declines among emerging-market currencies tracked by Bloomberg.

China’s yuan dropped after the nation’s central bank weakened the reference rate for a third day to a level that meant depreciation was necessary to stay within the permitted trading band.

The Communist Party will start on Nov. 8 its 18th Congress, when 2,270 delegates meet over several days to decide on leadership changes.

A services purchasing managers’ index for China released by HSBC Holdings Plc and Markit Economics dropped to 53.5 in October from a September reading of 54.3.

Industrial & Commercial Bank of China (1398) Ltd. dropped 1.3 percent in Hong Kong, the first decline in four days.

The Kuwait Stock Exchange Index (KWSEIDX) rallied 1.6 percent, the biggest gain since February. The gauge slipped last week amid concerns over the Persian Gulf country’s political stability.

The Philippine Stock Exchange Index closed at a record, rising 0.6 percent, as the measure resumed trading after markets were shut on Nov. 1 and 2.

‘Adding to Uncertainty’

Equities also fell today on prospects European leaders’ determination to keep Greece in the euro area will be tested this week with Prime Minister Antonis Samaras struggling to win political support for measures needed to obtain aid. Samaras said yesterday that Greek society won’t tolerate any more austerity measures. The first parliamentary vote on the latest package is scheduled to take place as early as Nov. 7.

“The decision on Greece is adding to uncertainty,” making emerging-markets investors cautious today, Gaelle Blanchard, an emerging-markets strategist at Societe Generale SA in London, said by phone.

Telkom SA (TKG), a telecommunications provider for South Africa, fell 3.1 percent in Johannesburg to the lowest in more than a month as Chief Executive Officer Nombulelo Moholi resigned amid a struggle to raise the capital necessary to expand into broadband and mobile services.

Dana Gas

Dana Gas PJSC shares dropped 2.4 percent in Abu Dhabi to the lowest level since Sept. 13 on bets the fuel producer hasn’t reached an agreement with bondholders for $1 billion of Islamic debt that matured last week and that lenders may seize the company’s assets in Egypt.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell two basis points, or 0.02 percentage point, to 290, according to JPMorgan Chase & Co.’s EMBI Global Index.

Hyundai Motor (005380), South Korea’s largest carmaker, tumbled 7.2 percent, its steepest loss since August 2011, while affiliate Kia Motors retreated 6.9 percent for the lowest close since February of last year.

The automakers said in a statement that they will issue debit cards to buyers of about 900,000 vehicles sold in the U.S. in the past two years to reimburse them for higher-than-expected fuel expenses after they were found to have overstated their fuel efficiency.

Foxconn International Holdings Ltd. (2038) rallied 32 percent in Hong Kong, a record gain. HSBC Holdings Plc. and Citigroup raised ratings, saying the company may return to profit by supplying Apple Inc. and Amazon.com Inc.

E Ink Holdings slumped 6.9 percent in Taipei trading. Citigroup advised investors to sell the shares, saying tablet products are cannibalizing demand for higher-margin e-paper. Mumbai-based Godrej Consumer Products Ltd. (GCPL) sank 5 percent, the most since September 2010, after third-quarter profit missed estimates.

To contact the reporters on this story: Maria Levitov in London at mlevitov@bloomberg.net; Julia Leite in New York at jleite3@bloomberg.net

To contact the editors responsible for this story: Emma O’Brien at eobrien6@bloomberg.net; Gavin Serkin at gserkin@bloomberg.net

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