Emerging Stocks Slip on IMF Growth Outlook, China Economy

Emerging-market stocks dropped, led by industrial companies, as the International Monetary Fund cut its global growth forecasts and a leading index for China’s economy rose at a slower pace in December.

LG Household & Health Care Ltd. (051900), a South Korean maker of cleaning and personal care products, tumbled the most since 2008 after its profit forecast missed estimates. Hindustan Unilever Ltd. (HUVR) plunged in Mumbai after Credit Suisse Group AG, CLSA Asia- Pacific Markets and Nomura Holdings Inc. cut their recommendations. China Merchants Holdings International Co. (144) sank the most in 11 weeks in Hong Kong. Brazilian paper maker Klabin SA (KLBN4) surged to a record high.

The MSCI Emerging Markets Index of developing-nation stocks retreated 0.2 percent to 1,076.53 in New York, while its 100-day volatility dropped to the lowest level since October 2005. The world’s economy will expand 3.5 percent this year, less than the 3.6 percent forecast in October, the IMF said today as it also reduced outlooks for Brazil and India. A gauge for China’s economy gained 0.4 percent in December, compared with a 1.1 percent increase in the previous month.

“What the IMF is obviously saying is they’re not anticipating that things are picking up,” Mark Luschini, the chief investment strategist at Janney Montgomery Scott LLC, which manages about $54 billion, said by phone today from Philadelphia. “The euro zone is in recession, the question now is whether it’s going to worsen.”

Debt Vote

The Washington-based IMF said in an update of its World Economic Outlook report today that it expects the 17-country euro area to shrink 0.2 percent in 2013, instead of growing 0.2 percent as forecast in October, as Spain leads the contraction and Germany slows.

The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF tracking developing-nation shares, fell 0.5 percent to 44.47, the lowest level in a week. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index (VXEEM), a measure of options prices on the fund and expectations of price swings, declined 3.4 percent to15.69.

Brazil’s Bovespa (IBOV) index rose 0.4 percent, boosted by Klabin, which advanced 4.5 percent to the highest level on record. OGX Petroleo & Gas Participacoes SA, the oil producer controlled by Brazilian billionaire Eike Batista, snapped a four-day losing streak to gain 4.2 percent after saying that fields it operates with MPX Energia SA are commercially viable.

Brazilian consumer prices rose more in the month through Jan. 15 than forecast by any economist surveyed by Bloomberg, bolstering speculation the central bank will increase borrowing costs from record lows and reduce support for the economy.

Budget Battles

The U.S. House voted today to temporarily suspend the nation’s borrowing limit, removing the debt ceiling for now as a tool for seeking deeper spending cuts. Global investors say the state of the U.S. government’s finances is the greatest risk to global growth and almost half are curbing their investments in response to continuing budget battles, a Bloomberg poll shows.

The 21 nations in MSCI’s developing-nations gauge send about 17 percent of their exports to the U.S. and 26 percent to the European Union on average, data compiled by the World Trade Organization show.

South Africa’s rand tumbled as much as 2.4 percent, surpassing 9 per dollar for the first time since November, to trade at the weakest level since April 2009 as a report showed inflation accelerated to a seven-month high in December. The South Korean won weakened 0.4 percent after Finance Minister Bahk Jae Wan vowed to curb the currency’s volatility.

‘Currencies’ strength’

“Some investors are also cautious about some governments’ measures in dealing with their currencies’ strength,” Jitra Amornthum, the head of research of Finansia Syrus Securities Pcl, said by phone in Bangkok.

Brazil’s real gained 0.3 percent versus the dollar, the best performance among Latin American currencies tracked by Bloomberg, as foreign direct investment rose to $5.4 billion in December from $4.6 billion in the prior month and higher than the median forecast of $4.1 billion in a survey of 16 economists by Bloomberg.

Russian retailers lifted the Micex Index to its first gain in three days during the day. Turkey’s ISE National 100 Index climbed 0.8 percent, rising for a ninth day, the longest winning streak in three months.

A gauge of developing nations industrial companies sank 0.8 percent, the most among the 10 industry groups in the MSCI Emerging Markets Index (MXEF), while energy companies rose. The developing-nations measure has added 2 percent this year, trailing a 4.1 percent increase by the MSCI World Index. (MXWO) The emerging-markets index trades at 11 times estimated profit, compared with the MSCI World’s multiple of 13.5, data compiled by Bloomberg show.

Lower Target

South Korea’s Kospi Index (KOSPI) slid 0.8 percent as Goldman Sachs Group Inc. cut its 2013 gross domestic product growth forecast to 3.1 percent from 3.4 percent, citing weaker-than-expected fourth quarter activities.

LG Household tumbled 7.5 percent, the largest decline in the MSCI Emerging Markets Index. The company is targeting about 535 billion won ($502 million) in operating profit this year, the company said in a filing yesterday. That’s lower than the 568.4 billion won average of analyst estimates compiled by Bloomberg.

TAV Havalimanlari Holding AS (TAVHL), Turkey’s biggest airport operator, rose 1.4 percent toward a record after saying it will be compensated for potential losses should the government open a third Istanbul airport before 2021.

Hindustan Unilever tumbled 4.3 percent in Mumbai, after Credit Suisse, CLSA and Nomura cut their recommendations on India’s biggest home-products maker.

China Manufacturing

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. declined 0.5 percent to 101.24, the lowest level in a week. Bona Film Group Ltd. was the worst performer on the gauge.

The Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in Hong Kong dropped 0.2 percent. The FTSE Bursa Malaysia KLCI Index gained 0.4 percent, snapping a five-day slump, after speculation elections will be held soon dragged the benchmark index’s valuations to the lowest in seven months.

China Merchants, a port operator, dropped 4.2 percent in Hong Kong, the most since Nov. 6. HSBC Holdings Plc and Markit Economics are due to release a preliminary manufacturing index for January tomorrow. The gauge may rise to 51.7 from 51.5 last year, according to the median estimate of 17 analysts in a Bloomberg survey. A reading above 50 indicates expansion.

A leading index for China’s economy rose at a slower pace in December. A month-on-month gain in the Conference Board’s gauge slowed on sluggish real estate and export markets, according to a statement from the New York-based research group, citing a preliminary reading.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell two basis points, or 0.02 percentage point, to 263 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporters on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net; Victoria Stilwell in New York at vstilwell1@bloomberg.net

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

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