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Emerging ETF Slumps as Oil Declines Sink Brazil

The iShares MSCI Emerging Markets exchange-traded fund tumbled the most since November as oil’s retreat weighed on benchmarks in Russia and Brazil. Asian equities gained after China’s services industries accelerated.

OAO Rosneft, Russia’s biggest oil producer, and OGX Petroleo & Gas Participacoes SA of Brazil slumped at least 1.5 percent. Ayala Corp. (AC) rallied to a record in Manila, pushing the Philippine benchmark to a record, after announcing plans to invest as much as $200 million this year through its energy unit. MISC Bhd. (MISC) surged the most in more than 14 years in Kuala Lumpur after receiving a buyout offer. Sany Heavy Industry Co., the biggest Chinese machinery maker, advanced for a third day.

The iShares emerging-markets exchange-traded fund dropped 1.3 percent to $43.92 in New York, the biggest decline since Nov. 14. The MSCI Emerging Markets Index (MXEF) was little changed at 1,072.73, with 384 stocks rising and 362 falling. The Standard & Poor’s GSCI gauge of 24 raw materials lost 0.8 percent as oil retreated 1.6 percent in New York for its biggest slump in two months. China’s services industries grew at the fastest pace since August, the government said yesterday.

“You have a pullback in risk as a result of the political jitters coming out of Europe, which is taking precedence over the healthier macroeconomic conditions in emerging markets,” Aryam Vazquez, an economist at Wells Fargo & Co. in New York, said by phone. “Many of these emerging market countries are commodities producers, exporters and consumers, and anytime you have a pullback in risk assets such as commodities, emerging markets are going to feel it.”

Europe Uncertainty

The Chicago Board Options Exchange Emerging Markets ETF Volatility Index (VXEEM), a measure of options prices on the fund and expectations of price swings, jumped 10 percent to 19.95, the highest level in 2013. The MSCI measure’s 100-day volatility dropped to 9, the lowest since August 1997.

European stocks fell the most in three months amid signs of returning political uncertainty in Italy and Spain, the region’s weakest economies. Russia’s Micex Index lost 0.8 percent, while volume on the gauge was 13 percent higher than the 30-day average. Benchmarks in the Czech Republic and Hungary slid at least 0.9 percent.

Rosneft fell 1.5 percent to the lowest price in seven weeks. Russia gets about half of its budget revenue from oil and natural gas.

Brazil’s Bovespa index declined 1.3 percent, led by a 5.9 percent tumble by Braskem SA (BRKM5), Latin America’s largest petrochemical maker. OGX, the oil company controlled by billionaire Eike Batista, fell 3.1 percent to the lowest price in more than four years after reporting a drop in average production at its main field.

Chinese Gains

Orders placed with U.S. factories increased less than forecast in December, reflecting a decline in non-durable goods that partly countered gains in construction equipment and computers.

The Shanghai Composite Index (SHCOMP) climbed 0.4 percent, the highest since May 8, with volumes 31 percent more than the 30- day average. Taiwan’s Taiex index gained 0.9 percent to the highest close since March 30. Abu Dhabi’s ADX General Index added 0.3 percent, the highest close since March 2010.

China’s services industries rose as gains in retail and construction aided government efforts to drive a recovery. The non-manufacturing Purchasing Managers’ Index climbed to 56.2 in January from 56.1 in December, the National Bureau of Statistics and China Federation of Logistics & Purchasing said in a statement yesterday. A reading above 50 indicates expansion.

Philippine Surge

Sany Heavy Industry climbed 2.3 percent in Shanghai to the highest level in six months on volumes 2.5 times the three-month daily average.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. fell 3.1 percent, the most since June 21. American depositary receipts of China Petroleum & Chemical Corp., Asia’s biggest refiner, tumbled 7.2 percent, the most in a year, on plans to sell shares at a discount.

The Philippine Stock Exchange Index jumped 1.9 percent, the biggest gain among benchmark indexes in Asia, and the peso approached a five-year high as expansion plans from companies boosted confidence in the nation’s economic and earnings growth. Ayala, owner of the nation’s biggest developer, advanced 4.1 percent to a record high.

“This rally stands on firm ground,” said Paul Joseph Garcia, who helps manage the equivalent of $3 billion at Manila- based BPI Asset Management Inc. “Investors are willing to pay a premium for earnings visibility and future prospects.”

Ruble Weakens

The BSE India Sensitive Index, or Sensex, lost 0.2 percent in its third day of declines. State-owned Bank of Baroda plunged 7.4 percent to lead losses on the MSCI emerging markets gauge. Third-quarter net income at the Indian bank fell 22 percent to 10.1 billion rupees ($189.5 million), according to an exchange filing. That’s less than the 13.2 billion rupees estimated by analysts in a Bloomberg survey.

MISC, the world’s second-largest liquefied natural gas shipper, surged 17 percent, the biggest gain since September 1998. Petroliam Nasional Bhd., or Petronas, offered 5.30 ringgit per share in cash for the remaining 37 percent stake in the shipping unit, according to a stock exchange filing on Jan. 31, valuing the deal at 8.8 billion ringgit ($2.8 billion).

Russia’s ruble weakened 0.8 percent versus the dollar, the most since October. The rand declined for the first time in three days as investors speculated the currency’s gain last week, the biggest in almost four months, was overdone.

Energy Companies

The MSCI Emerging Markets Energy Index (MXEF0EN) lost 1 percent, the biggest drop among 10 industry groups in the broader gauge. Technology companies added 0.7 percent, the best performers. The developing-nations measure has added 1.7 percent this year, trailing a 4.6 percent increase by the MSCI World Index. (MXWO) The emerging-markets index trades at 11 times estimated profit, compared with the MSCI World’s 13.6 times, data compiled by Bloomberg show.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose seven basis points, or 0.07 percentage point, to 276, according to JPMorgan Chase & Co.’s EMBI Global Index.

Japan’s public pension fund, the world’s biggest manager of retirement savings, may increase holdings in emerging-market stocks and start buying alternative assets, President Takahiro Mitani said in a Feb. 1 interview in Tokyo.

Under Mitani’s leadership, the Government Pension Investment Fund began buying emerging-market assets in September 2011 and started purchasing shares in countries included in the MSCI Emerging Market Index last year.

South Korea’s won led returns among emerging market currencies, rallying the most in 14 months to 1,084.78 per dollar in Seoul. Moon Woo Sik, a Bank of Korea board member, sees no immediate need to alter benchmark interest rates and thinks it’s too early for any central bank response to the yen’s slide against the won, according to an interview last week.

To contact the reporters on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net; Victoria Stilwell in New York at vstilwell1@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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