Emerging Stocks Drop Amid Low Volatility and Energy Slump

Emerging-market stocks fell and price swings in the benchmark index sank to the lowest level since 1997 as Malaysia’s benchmark index declined and energy companies slumped.

UEM Land Holdings Bhd. led losses in Malaysia, where the FTSE Bursa Malaysia KLCI Index retreated to a two-month low, on speculation the government will dissolve parliament after the Lunar New Year. Sappi Ltd. slid the most since December 2011 in Johannesburg after profit slumped. Brazil’s Bovespa fell to a two-month low and B2W Cia. Global do Varejo tumbled amid concern that policy makers may increase borrowing costs to curb inflation. Developing-nation energy stocks dropped 0.8 percent.

The MSCI Emerging Markets Index lost 0.4 percent to 1,063.75 in New York, as the 821-member gauge’s 100-day volatility slumped to 8.9, the lowest level since August 1997. The developing-nations measure has added 0.8 percent this year, trailing a 5.2 percent increase by the MSCI World Index. The emerging-markets index trades at 10.3 times estimated 12-month profit, compared with the MSCI World’s 13.7 times, data compiled by Bloomberg show.

“There’s a lot of angst out there now because emerging markets have been underperforming developed markets so far this year,” Geoffrey Dennis, global emerging-markets strategist at Citigroup Inc., said by phone from New York today. “Earlier this year it was a bit of profit taking, but the other thing that’s going on here is that each of the major developed market blocks have had reasons to do well this year.”

Brazil, Poland

The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF tracking developing-nation shares, lost 0.1 percent to 43.92. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, climbed 1.9 percent to 18.75.

Brazil’s Bovespa dropped 0.8 percent to the lowest close in two months as B2W declined 3.3 percent. Petroleo Brasileiro SA, Brazil’s state-controlled oil company known as Petrobras, retreated 2.7 percent after Jefferies & Co. cut its recommendation on the shares from hold from buy.

Preferred shares of Eletropaulo Metropolitana Eletricidade de Sao Paulo SA, Brazil’s largest electricity distributor, added 1.3 percent and earlier climbed as much as 14 percent after lending for short selling reached a limit.

Poland’s WIG 20 Index fell 1.2 percent, reversing yesterday’s gains, while Grupa Lotos SA, Poland’s second-largest oil company, declined 5.3 percent to lead declines among emerging energy companies. The nation’s central bank cut its main interest rate for a fourth month today to avert the biggest economic slowdown in more than a decade.

‘Mood Is Cautious’

The Czech Republic kept interest rates unchanged today, in line with the forecasts of all 17 analysts in a Bloomberg survey, as policy makers debate whether the risks of a record- long recession warrant more easing through koruna sales. The koruna weakened 1.1 percent versus the euro while the PX Index slipped 0.5 percent to the lowest level in almost two months.

Investors are wary of taking positions in emerging markets before European Central Bank policy makers meet in Frankfurt tomorrow, Nordea Bank AB’s Aurelija Augulyte said.

“The mood is cautious,” Augulyte, an emerging-market strategist at Nordea in Copenhagen, said by e-mail. “Everyone is on the sidelines ahead of the ECB.”

Hungary’s BUX Index slipped 0.1 percent, while the forint pared losses after weakening as much as 1.3 percent against the euro earlier today. Hungary’s ruling party denied a report in Vilaggazdasag late yesterday the government has picked Economy Minister Gyorgy Matolcsy as president of the central bank.

Deal Delay

Turkey’s ISE National 100 gauge retreated 0.3 percent, while Russia’s Micex Index dropped 0.6 percent. OAO Sberbank, Russia’s largest lender, surged as much as 2.2 percent before falling 0.8 percent in Moscow after reaching its depositary receipt conversion limit. The Bank of New York Mellon Corp. issued a statement halting its depositary receipt program.

RusPetro Plc, a producer of oil in Siberia, slumped 16 percent in London to a record low after saying it was postponing a bond sale designed to strengthen its finances.

A gauge of energy stocks on the MSCI Emerging Markets Index fell 0.9 percent, the most among 10 industry groups.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose one basis point, or 0.01 percentage point, to 275 basis points, according to JPMorgan Chase’s EMBI Global Index.

Sappi, the world’s biggest maker of glossy paper, fell 5.7 percent in Johannesburg, the most since December 2011, after the company said fiscal first-quarter profit slumped 62 percent because of lower paper and pulp prices.

Currency Reserves

Commercial International Bank Egypt SAE, the nation’s biggest publicly-traded lender, fell 3.7 percent, the biggest drop since Jan. 29. Egypt’s benchmark stock index lost 1.8 percent, the first drop in six days after the nation’s foreign- currency reserves dropped to a 15-year low.

The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. climbed 0.1 percent as Semiconductor Manufacturing International Corp. rallied 7.7 percent after reporting record sales for the fourth quarter. Melco Crown Entertainment Ltd., a Macau casino operator, slid the most in two months on a report China will crack down on junkets bringing gamblers to the city.

The Hang Seng China Enterprises Index rose 0.3 percent, snapping a two-day, 3.3 percent slide. The Philippine Stock Exchange Index slid 0.6 percent and Thailand’s SET Index declined 0.4 percent. Vietnam’s VN Index jumped 2.3 percent to the highest level in nearly two years. The won and baht slipped on concern the nations’ governments will intervene to protect exports.

Election Timing

The FTSE Bursa Malaysia KLCI Index lost 1.2 percent and the gauge’s 50-day volatility rose to 9.13, the highest level since Feb. 21, on speculation the government will dissolve parliament soon for an election. UEM Land, a property developer, sank 7.4 percent.

Prime Minister Najib Razak, who must dissolve parliament by April 28, is having his weekly Cabinet meeting and couldn’t comment on the election timing, a government spokeswoman said today. The Lunar New Year starts on Feb. 10.

The BSE India Sensitive Index dropped 0.1 percent, falling for a fifth day, the longest losing streak since Dec. 13. India’s central bank should leave interest rates unchanged until inflation is contained even as the nation faces a subdued economic recovery, the International Monetary Fund said in a statement released today.

Jubilant Foodworks Ltd. surged 9.1 percent in Mumbai, the biggest gain since October 2011. The stock was upgraded to buy by Deutsche Bank AG and to hold by Jefferies.

Warren Buffett

Gome Electrical Appliances Holding Ltd. rose the most in two weeks in Hong Kong after China approved a plan to tackle the wealth gap and increase minimum wages.

BYD Co., the Chinese carmaker partly owned by Warren Buffett’s Berkshire Hathaway Inc., rose 5.2 percent in Hong Kong, the most since Jan. 9. China’s government spending curbs may boost domestic car sales, China Daily reported, citing Cui Dongshu, deputy secretary general of the Passenger Car Association.

Soho China Ltd., the biggest developer in Beijing’s central business district, tumbled 8 percent in Hong Kong after a Beijing Times report linked the company to money laundering. Soho denied the claim.

Cathay Financial Holding Co. Ltd. climbed to a 17-month high in Taipei after posting a profit in January. Cathay Financial, Taiwan’s largest financial services company, jumped 4.4 percent. The company reported net income of NT$3.04 billion ($103 million) in January, compared with a loss in the same month a year earlier.

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

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