Emerging Stocks Drop Most in Six Weeks on U.S. Budget

Emerging-market stocks fell the most in six weeks as mounting concern over the U.S. budget standoff sent commodity producers in Russia and Brazil lower.

OAO Transneft, the state-run oil pipeline operator, declined in Moscow, while Cia Siderurgica Nacional SA, Brazil’s third-biggest steelmaker by output, dropped the most in three weeks. Jindal Steel & Power Ltd. was the worst performer on India’s Sensex (SENSEX) Index, which posted the biggest retreat since Oct. 30. Samsung Electronics Co. (005930), the world’s biggest maker of smartphones and televisions, dropped the most in more than three months after the European Union said it’s preparing an antitrust complaint.

The MSCI Emerging Markets Index (MXEF) lost 0.9 percent to 1,043.03 in New York, the biggest drop since Nov. 8. The gauge was little changed for the week. U.S. House Republican leaders canceled a vote that would permit higher tax rates amid stalled budget talks to avert more than $600 billion in tax increases and spending cuts set to start on Jan. 1. The 21 nations in the developing-nations gauge send about 17 percent of their exports to the U.S. on average, World Trade Organization data show.

“Every market is watching the U.S.,” Benoit Anne, the London-based head of emerging-market strategy at Societe Generale SA, said by phone. “Commodities are global risk indicators, and they might be under pressure if we continue to be nervous about the fiscal cliff.”

The MSCI Emerging Markets Index has risen 14 percent this year, beating the 13 percent increase in the MSCI World Index of developed countries. The emerging-markets gauge trades at 12 times estimated profit, compared with the MSCI World’s 13.8, according to data compiled by Bloomberg.

After Christmas

The S&P GSCI Spot Index fell for a second day, declining 0.7 percent as crude oil slid 1.6 percent to $88.66 a barrel in New York, the first drop in six days.

U.S. House Speaker John Boehner scrapped a plan to allow higher tax rates on annual income above $1 million, yielding to anti-tax resistance within his own party. House members and senators won’t vote on the end-of-year budget issues until after Christmas, giving them less than a week to reach agreement to avert the so-called fiscal cliff.

The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF tracking developing-nation shares, fell 1.2 percent to $42.27. The ETF has gained 14 percent this year. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, jumped 2.5 percent to 20.53.

Bovespa Retreats

Brazil’s Bovespa Index (IBOV) retreated 0.4 percent, its biggest decline in two weeks, and trimmed its weekly gain to 2.4 percent. CSN, as Cia. Siderurgica Nacional is known, dropped 2.3 percent, the most since Nov. 30. B2W Cia Global Do Varejo fell 5.2 percent, the biggest slump in two months, after shares were downgraded to sell from hold at Deutsche Bank AG.

Eletropaulo Metropolitana SA was the best performer on the emerging markets gauge, surging 9.1 percent, the most in four years. Cia. Energetica de Minas Gerais, Brazil’s biggest electric utility, also rallied the most in four years as Banco Bradesco SA recommended investors buy the stock. The company, known as Cemig, rose 6.1 percent, the most since Oct. 2008.

The Argentina Merval Index (MERVAL) fell 2.6 percent, the most in four weeks. Pampa Energia SA (PAMP), the nation’s largest electricity company, fell 4.3 percent to lead declines in Buenos Aires.

India’s Sensex dropped 1.1 percent, the most since Oct. 30 as Jindal, the nation’s second-biggest steelmaker by value, declined 3.5 percent. Sterlite Industries Ltd., India’s biggest copper producer, fell 3.3 percent, snapping a five-day rally.

Post Loss

Russia’s Micex Index retreated 0.7 percent, paring its weekly advance to 0.8 percent. Transneft shed 1.8 percent, while OAO Bashneft, a regional oil producer, lost 0.9 percent. Benchmark indexes in Poland and Turkey also declined.

Netia SA (NET), a Polish phone company, sank 16 percent, its biggest fall in more than nine years, after the company said it may post a loss this year because of an asset writedown in the fourth quarter.

South Africa’s rand weakened 1.4 percent against the dollar, the most in three weeks. Indonesia’s rupiah weakened 0.8 percent amid concern about a widening current-account deficit. India’s rupee lost 0.4 percent.

Taiwan’s Taiex Index (TWSE) and South Korea’s Kospi index dropped 1 percent, with trading volumes in Seoul 34 percent above the 30-day average, data compiled by Bloomberg show. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong, slipped 1.1 percent, the most since Dec. 3.

Technology Slump

Samsung led a gauge of technology companies to retreat 2 percent, the most among 10 industry groups in MSCI’s emerging- markets index. Samsung sank 4.1 percent, the biggest loss since Aug. 27, after the EU said it is probing whether the company violated agreements to license key patents to other mobile-phone makers on fair terms. The EU will issue a notice listing antitrust concerns as soon as the end of this year, the bloc’s competition commissioner said yesterday.

LG Display Co. (034220) slid 3.5 percent, while memory-chip maker SK Hynix Inc. (000660) slipped 3.4 percent to a two-week low.

Innolux Corp. (3481) and AU Optronics Corp. (2409) lost at least 6 percent in Taipei after the Economic Daily News reported a drop in prices of liquid-crystal display panels.

The Philippine Stock Exchange Index (PCOMP) rose for a fourth day and government bonds advanced on speculation the nation will win an investment-grade rating next year after Standard & Poor’s raised its credit outlook to positive.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose one basis point, or 0.01 percentage point, to 265, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporters on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net; Victoria Stilwell in New York at vstilwell1@bloomberg.net

To contact the editors responsible for this story: Darren Boey at dboey@bloomberg.net; Vernon Wessels at vwessels@bloomberg.net

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