Emerging Stocks Drop With Commodities Amid Korea Tensions

Emerging-market stocks dropped for a third day as falling commodity prices dragged down materials producers and tensions on the Korean peninsula escalated.

Gold producer Zhaojin Mining Industry Co. (1818) fell 4.3 percent to a seven-month low in Hong Kong. OAO Severstal, Russia’s second-biggest steelmaker, fell for a third day, and KGHM Polska Miedz SA (KGH), Poland’s sole copper producer, lost the most in more than a week. South Korean stocks fell a third day. Rossi Residencial SA led homebuilders higher in Brazil.

The MSCI Emerging Markets Index lost 0.4 percent to 1,024.99 in New York. The S&P GSCI Index of 24 raw materials slid the most since Nov. 7. North Korea prevented South Korean workers from entering a jointly run industrial park after saying it will restart a mothballed nuclear plant and threatening to attack its southern neighbor.

“Commodities are a big portion of the index,” Michelle Gibley, director of international research at San Francisco- based Charles Schwab Corp., said by phone. Her firm manages $2.04 trillion in client assets. “When you get a flare up in geopolitical risk, it results in market volatility. You certainly never want to see heating up of political risk.”

Nine out of 10 groups in the MSCI Emerging Markets Index (MXEF) fell today as healthcare companies and energy producers had the biggest losses. The broader gauge has slumped 2.9 percent this year, compared with a 6.5 percent advance 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 multiple of 13.8, data compiled by Bloomberg show.

Emerging ETF

The iShares MSCI Emerging Markets Index exchange-traded fund dropped 1.2 percent to $41.83. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, gained 3.3 percent to 18.36.

Brazil’s Bovespa gained 1.2 percent as Rossi jumped 9.4 percent. The Mexican IPC Index (MEXBOL) fell 0.9 percent as America Movil SAB, the heaviest weighed stock on the gauge, sank 1.8 percent. Stocks in the U.S. dropped as data on private payrolls and services-industry growth trailed estimates.

Russian shares slid as oil, the nation’s chief export earner, dropped the most this year. Benchmark gauges in Hungary, Poland and the Czech Republic fell at least 0.9 percent. KGHM dropped 0.7 percent in Warsaw, while Severstal tumbled 4.3 percent in Moscow.

South Korea

South Korea’s Kospi Index (KOSPI) slipped 0.2 percent to the lowest level since March 25. The won dropped as much as 0.5 percent against the dollar to the weakest level since Sept. 20, before closing little changed. LG Innotek Co., a South Korean maker of light-emitting diode products, rallied 8.8 percent, the most in the emerging markets gauge.

China’s stocks dropped to a 14-week low in Shanghai as concerns over a new strain of avian flu overshadowed data showing growth in the nation’s services industries. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slid 0.5 percent. Zhaojin Mining fell 4.3 percent.

Yingde Gases Group Co. (2168) tumbled 14 percent, the most on record. The company, which manufactures industrial gases, was the worst performer in the emerging markets gauge today. The company said that the decision to loan money to shareholder Bubbly Brooke to help fund purchase of its shares was a “mistake” caused by “misunderstanding” of rules, according to a Hong Kong exchange filing.

India’s S&P BSE Sensex lost 1.3 percent, while Thailand’s SET Index fell 1.9 percent. The Philippine Stock Exchange Index rose 1 percent.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries was unchanged at 304 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.

To contact the reporters on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net; Julia Leite in New York at jleite3@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net

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