Emerging-market stocks tumbled to the lowest level in three months, led by Russian equities, as Europe’s bailout of Cyprus sparked concern over more financial turmoil. Currencies weakened and borrowing costs climbed.
VTB Group, Russia’s second-largest lender, capped the biggest drop in 10 months. Vale SA, the world’s biggest iron ore producer, fell a second day in Sao Paulo as commodity prices declined. Samsung Electronics Co. (005930) and Hyundai Merchant Marine Co., which got at least 17 percent of their sales from Europe in 2011, sank more than 2 percent in Seoul. The ruble weakened to the lowest level this year against the dollar.
The MSCI Emerging Markets Index (MXEF) fell 1.1 percent to 1,030.37 by 12:13 p.m. in New York, its sixth day of losses. European finance ministers reached an unprecedented agreement March 16 forcing depositors in Cypriot banks to share in the cost of the latest euro-area bailout. Including loans to companies registered in Cyprus, Russia’s “exposure” is about $60 billion, according to Moody’s Investors Service.
“It’s not so much Cyprus itself, but it reminds people that there’s still risk in Europe,” Paul Zemsky, the New York- based head of asset allocation for ING Investment Management, which oversees $170 billion, said by phone. “It really shakes confidence in the banking system.”
Cyprus’ banks will remain closed on Tuesday and Wednesday, according to a government official, as lawmakers meet tomorrow to vote on a bank tax to raise 5.8 billion euros ($7.6 billion) as part of a bailout aimed at preventing a financial collapse and a possible exit from the euro area. While Cyprus accounts for less than half a percent of the 17-nation euro economy, the concern is that the one-time tax on accounts could trigger bank runs across Europe and further destabilize the financial system.
The MSCI emerging-market index is headed for its lowest close since Dec. 10. Morgan Stanley cut its target this year for the gauge to 1,220 from 1,230, reflecting a “moderate downgrade” in earnings forecasts, analysts led by Jonathan Garner wrote in a report dated today.
All 10 groups in the developing-nations index dropped today as technology, energy and financial shares had the biggest losses. The broader measure has slipped 2.4 percent this year and trades at 10.8 times estimated 12-month earnings, according to data compiled by Bloomberg. That compares with a multiple of 14.2 for the MSCI World Index of developed-nation shares, which has climbed 7 percent in 2013.
The iShares MSCI Emerging Markets Index exchange-traded fund fell 0.9 percent to $43.40. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a gauge of options prices on the fund and expectations of price swings, jumped 9.8 percent to 17.54.
The Bovespa index declined for a fifth session. Vale was the biggest drag on the gauge, falling 1.4 percent. Mexico’s equity market is closed today for a holiday.
Russia’s Micex Index (INDEXCF) declined 2.2 percent, the biggest loss since Nov. 13 and the most among 21 emerging markets tracked by Bloomberg. VTB Group, Russia’s second-biggest lender, slumped 5.3 percent. OAO Sberbank, the nation’s largest lender with a 14 percent weighting on the Micex, retreated 3.8 percent. The ruble weakened 0.6 percent against the dollar.
Cyprus is both the biggest direct investor into Russia and the biggest recipient of Russian investment abroad, according to Russian central bank data. The 21 countries in the MSCI index send about 26 percent of their exports to the European Union on average, according to the World Trade Organization.
Hungary’s BUX Index slid 1.1 percent, declining for a fifth day, the longest losing streak since Dec. 10. Poland’s WIG 20 Index fell 1.2 percent.
China’s stocks fell, dragging the Hang Seng China Enterprises Index (HSCEI) down 12 percent from this year’s high, as slowing growth and faster inflation spurred JPMorgan Chase & Co. to downgrade the nation’s shares. SAIC Motor Corp. (600104) led declines by automakers after the nation’s quality watchdog ordered partner Volkswagen AG to recall some vehicles.
The extra yield investors demand to own developing-nation dollar debt over U.S. Treasuries increased three basis points, or 0.03 percentage point, to 291, according to the JPMorgan Chase & Co. EMBI Global Index.
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