Emerging Stocks Retreat as OGX Leads Declines in Brazil

Emerging-market stocks declined for a third day, the longest slide in a month, as OGX Petroleo e Gas Participacoes SA (OGXP3) led losses in Brazil and China’s companies linked to the Shanghai free-trade zone tumbled.

The MSCI Emerging Markets Index dropped 0.5 percent to 1003. The benchmark measure trimmed its monthly gain to 7.9 percent. OGX, the oil company founded byEike Batista, plunged 16 percent amid report that it missed a local bond payment. Shanghai International Port Group Co. and Shanghai Material Trading Co. slumped by the 10 percent daily limit after more than doubling this quarter. Poland’s WIG20 Index jumped as BRE Bank SA surged to the highest level since 2007.

OGX, this year’s worst-performer on Brazil’s Ibovespa, missed a coupon payment on a local bond yesterday, signaling it may miss a payment on dollar notes next week, Sao Paulo-based Valor Economico reported, without saying how it got the information. China’s plan to set up a test zone in Shanghai with reduced state control over policies from interest rates to foreign investment has split analysts over whether it will boost the economy across the nation.

“There’s certainly some profit taking in China, and that drags down everything,” Timothy Ghriskey, the chief investment officer at Solaris Group LLC in New York, which manages over $1.5 billion, said by phone. OGX’s troubles are “an indication that the problems that Brazil has experienced have gone very deep into the economy, and certainly is negative headline risk for the market overall,” he said.

All 10 groups in the MSCI Emerging Markets Index retreated today, led by phone and financial companies. The broad gauge traded at 10.5 times projected earnings, compared with the valuation of 14 for the MSCI World Index, according to data compiled by Bloomberg.

U.S. Data

Stocks briefly pared losses after U.S. data showed the number of Americans filing applications for unemployment benefits unexpectedly declined last week, while the economy expanded at faster pace in the second quarter from the previous three months. The Federal Reserve signaled in May stimulus could be trimmed if the economy showed sustained improvement.

“The unemployment claims are at a fairly low level, and that’s certainly something that’s beneficial to the economy,” Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama, said by phone. “To the extent that the Fed is still out there, you do get responses from economic data points as to how the Fed might respond.”

Emerging ETF

The iShares MSCI Emerging Markets Index exchange-traded fund added 0.4 percent to $41.72. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, declined 0.3 percent to 22.42.

Brazil’s Ibovespa (IBOV) fell a third day. OGX is scheduled to make a $44.5 million interest payment on its $1.06 billion of 2022 dollar debt on Oct. 1 and a $109 million payment on its $2.56 billion of 2018 bonds on Dec. 1. An OGX press official declined to comment on Valor Economico’s report.

Russia’s Micex Index rose to a one-week high as Uralkali added 1.1 percent, trimming this year’s plunge to 25 percent. Uralkali CEO Vladislav Baumgertner was moved to a rented apartment in Minsk from prison, his lawyer Alexei Basistov said today. Baumgertner was arrested last month after he pulled out of the Belaruskali trading venture with Belarus that controlled 40 percent of the global exports of the crop nutrient.

Poland, Turkey

Poland’s WIG20 Index (WIG20) added 1.2 percent, the most among major developing-nation gauges, as BRE added 4.8 percent. The Budapest Stock Exchange Index rallied to the highest since Aug. 8, while Turkey’s benchmark gauge fell for a fifth day.

China’s stocks fell to the lowest level in almost three weeks as Shanghai International Port Group Co. and Shanghai Material Trading Co. (900927) slumped by the 10 percent daily limit after more than doubling this quarter. The nation’s plan to set up a test zone in Shanghai with reduced state control over policies from interest rates to foreign investment has split analysts over whether it will boost the economy.

Eight of 17 respondents to a Bloomberg News survey said the free trade zone will have no effect or a negligible impact on growth, while eight said it will boost annual expansion by 0.1 percentage point to 0.5 point over the next five years. One economist in the survey, conducted from Sept. 18 through yesterday, said growth would increase by 0.5 point to 0.9 point.

India’s benchmark stock index rose, led by drugmakers and consumer-goods companies, amid expiry of monthly derivatives contracts. Sun Pharmaceutical Industries Ltd. increased 2.2 percent, sending a gauge of health-care companies to a record.

The premium investors demand to own emerging-market debt over U.S. Treasuries was unchanged at 328 basis points, according to JPMorgan Chase & Co.

To contact the reporters on this story: Maria Levitov in London at mlevitov@bloomberg.net; Julia Leite in New York at jleite3@bloomberg.net; Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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