Emerging Stocks Drop to 3-Month Low on Euro Area Concerns

Emerging stocks fell to a three- month low, led by energy and consumer companies, as concern the euro area is struggling to emerge from a recession overshadowed an expansion in China’s manufacturing. Brazil’s real dropped to 2 per dollar for the first time since January.

KGHM Polska Miedz SA (KGH), which gets 17 percent of its revenue from Germany, led declines in Warsaw. Indian automakers Bajaj Auto Ltd. and Tata Motors Ltd. (TTMT) fell at least 4.2 percent. Tencent Holdings Ltd. (700), China’s largest Internet company, slumped in Hong Kong as analysts cut share price forecasts. Brazil’s Bovespa Index fell to a four-month low as miner MMX Mineracao & Metalicos SA dropped a seventh day.

The MSCI Emerging Markets Index slid 0.4 percent to 1,022.43 in New York, the lowest since Dec. 6. Manufacturing output in Germany unexpectedly fell this month while services and factory output in the euro area contracted more than forecast. China’s manufacturing expanded at a faster-than- forecast pace.

“Euro-zone growth, budget deficit and debt burden are still major concerns,” Martial Godet, head of emerging-markets strategy at BNP Paribas SA in London. Attention is “shifting to financial issues, to default issues -- all negative for equities,” he said.

The European Central Bank said it will cut Cypriot banks off from emergency funds after March 25 unless the nation agrees on a bailout with the European Union and International Monetary Fund. Standard & Poor’s cut Cyprus’s long-term sovereign rating by one level. Stocks fell even as data showed fewer Americans than forecast filed first-time claims for unemployment insurance.

Emerging ETF

The iShares MSCI Emerging Markets Index exchange-traded fund fell 1 percent to $41.80. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, rose 11 percent to 20.15.

Nine out of 10 industry groups in the MSCI Emerging Markets Index (MXEF) fell, led by energy companies. Phone shares rose as America Movil SAB jumped 4.3 percent in Mexico City. The broader measure has slipped 3.1 percent this year, trailing a 6.6 percent gain in the MSCI World Index (MXWO) of developed-country stocks. The developing-nations measure trades at 10.7 times estimated 12-month earnings, compared with the MSCI World’s 14.1 times, data compiled by Bloomberg show.

Brazil’s Bovespa fell 0.8 percent as MMX dropped 7 percent, leading commodity exporters lower amid concern that slower growth in Europe will sap demand for raw materials. The real slid 0.9 percent versus the dollar on speculation government intervention in the economy to spur growth is prompting investors to withdraw money from the country.

Russia, Poland

Russia’s Micex Index was little changed. OAO Rostelecom, Russia’s dominant fixed-line and long-distance phone operator, surged 3.5 percent before the board meets to decide on a buyout price March 27. KGHM, Poland’s sole copper producer, slipped 2.5 percent. The WIG20 Index fell 1.1 percent.

Indian equities fell for the fifth day, with the benchmark index retreating to its lowest level in four months. Automakers and energy companies paced the decline that gathered momentum in the last hour of trade. Tata Motors, the owner of Jaguar Land Rover, retreated to the lowest level since Dec. 4.

Chinese stocks rose, extending the biggest one-day gain in two months. The Shanghai Composite Index added 0.3 percent. FAW Car Co. gained 3.2 percent after rallying by the daily 10 percent limit yesterday.

The extra yield investors demand to own developing-nation dollar debt over U.S. Treasuries rose two basis points, or 0.02 percentage point, to 299 basis points, according to the JPMorgan Chase & Co. EMBI Global Index.

To contact the reporter on this story: Maria Levitov in London at mlevitov@bloomberg.net

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

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