Emerging ETF Slips as French Cut Tempers Technology Rally

The exchange-traded fund tracking emerging-market stocks dropped for the first time in four days as France’s credit downgrade overshadowed the biggest rally in technology shares in five weeks.

The iShares MSCI Emerging Markets Index ETF retreated 0.2 percent to $41.04 in New York, paring a 2.4 percent advance in the previous three days. OAO Rostelecom dropped on reports investigators searched the chief executive officer’s house. Chipmaker Inotera Memories Inc. (3474) fell to a record low. LG Display Co. (034220) drove a jump in developing-nation technology shares as Hyundai Securities Co. said demand for LCD TVs will rise. Cemex SAB (CEMEXCPO), the largest cement maker in the Americas, rose the most in a month after U.S. housing starts unexpectedly climbed.

The MSCI Emerging Markets Index rose 0.2 percent to 979.49 as 364 stocks fell while 316 rose. Moody’s Investors Service cut France to Aa1 from Aaa yesterday, citing the worsening growth outlook for Europe’s second-largest economy. A 15 billion-euro ($19.2 billion) gap in Greece’s accounts is being discussed in a meeting of euro-area finance ministers today.

“There is a lack of trigger, no news on the key issues, the U.S. fiscal cliff and Greece, plus France’s downgrade may have soured sentiment,” Gaelle Blanchard, an emerging-markets strategist at Societe Generale SA in London, said by e-mail. “The mini-rally we saw yesterday lacks fuel to gain momentum.”

The Standard & Poor’s 500 Index jumped 2 percent for its biggest gain in two months yesterday, while the emerging markets ETF gained the most since Sep. 13. The 21 countries in the MSCI emerging market index send about 26 percent of their exports to the European Union and 17 percent to the U.S. on average, data compiled by the World Trade Organization show.

Ratings

Moody’s downgrade follows Standard & Poor’s decision to strip France of its AAA credit rating in January.

“Yesterday’s positive U.S. action probably drove the ETF higher than it should have been, and there wasn’t that much follow-through in Asia,” Greg Lesko, who helps manage about $700 million at Deltec Asset Management in New York, said by phone from New York. “It outperformed the index decently.”

Federal Reserve Chairman Ben S. Bernanke said the central bank doesn’t have the tools to offset the potential harm to the economy from the automatic spending cuts and tax increases that could take effect in January. While both sides said talks on Nov. 16 between President Barack Obama and Congress over the so- called fiscal cliff were “constructive,” the Congressional Budget Office has warned the U.S. risks a recession if spending cuts and tax rises aren’t resolved.

Talks to end fighting between Israel and Palestinian groups extended today as the army renewed its bombardment of Gaza and militants fired more rockets at the Jewish state.

Micex Drops

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell 6 basis points, or 0.06 percentage point, to 296 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.

The Chicago Board Options Exchange Emerging Markets ETF Volatility Index (VXEEM), a measure of options prices on the fund and expectations of price swings, climbed 2.3 percent.

Russia’s Micex Index declined 0.2 percent as oil slid from the highest level in a month. Hungary’s BUX Index sank 1.5 percent to the lowest close since Sept. 6. Brazil’s markets were closed for a holiday.

Cemex rose 4.3 percent in Mexico City, the most in a month. New-home construction in the U.S. jumped 3.6 percent in October, the fastest since July 2008 and exceeding all estimates in a Bloomberg survey.

The Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in Hong Kong slipped 0.6 percent. The Shanghai Composite Index (SHCOMP) lost 0.4 percent after foreign direct investment in China fell for the 11th time in 12 months as labor costs rose. Trading volumes slumped to the lowest level since Dec. 12, 2011, according to data compiled by Bloomberg.

Won, Lira

South Korea’s Kospi (KOSPI) index added 0.6 percent after Citigroup Inc. predicted the nation’s stocks will advance next year as economic growth revives and valuations recover. Mexico’s IPC index gained 0.9 percent.

South Korea’s won rose to a 14-month high and the Turkish lira strengthened 0.2 percent versus the dollar after the central bank narrowed its interest-rate corridor for a third month, leaving the benchmark repo rate of 5.75 percent unchanged.

The rand declined for the first time in three days as metal prices dropped amid concern a credit-rating cut for France signals a worsening economic outlook for the euro area, South Africa’s biggest regional trading partner.

Technology Rally

A gauge of technology companies was the main gainer among the 10 industry groups in the MSCI Emerging Markets Index. (MXEF) The MSCI Emerging Markets/Information Technology Index climbed 1.4 percent, the most since Oct. 16. Material stocks gained 0.3 percent.

The index of emerging market stocks has climbed 6.9 percent this year, less than an 8.3 percent gain by the MSCI World Index (MXWO) of developed countries. The gauge of developing-nation stocks trades at 11.3 times estimated profit, compared with the MSCI World’s 13.2, according to data compiled by Bloomberg.

Rostelecom slumped 2.1 percent. Prosecutors searched the country home of CEO Alexander Provotorov, who previously headed Moscow-based fund Marshall Capital, Interfax reported, citing unidentified law enforcement officials. A house belonging to Konstantin Malofeev, founder of Marshall Capital, which holds about 10 percent of state-run Rostelecom, was also searched and he himself detained, according to the news service.

Inotera dropped 6.6 percent in Taipei on its sixth day.

LG Display

LG Display jumped 4 percent in Seoul, the most since Oct. 29, after Hyundai Securities forecast a 15 percent surge in TV demand in North America this quarter. Topeka Capital Markets said demand for Apple’s products remains strong and that a recent slide in the U.S. company’s share price is unfounded.

Mol Nyrt. (MOL) slipped 3.7 percent to the lowest close since Sept. 7 after a Croatian court found former Prime Minister Ivo Sanader guilty of taking bribes from Hungary’s largest refiner, a charge that both parties denied.

China Construction Bank Corp. (939) lost 0.9 percent to the lowest since Oct. 10 in Hong Kong after foreign direct investment in China fell.

To contact the reporters on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net; Maria Levitov in London at mlevitov@bloomberg.net; Julia Leite in New York at jleite3@bloomberg.net

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

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