Emerging-market stocks declined for the first time in five days as U.S. lawmakers remained deadlocked over extending the debt limit to avoid default, intensifying concern that global economic growth will falter.
The MSCI Emerging Markets Index fell 0.3 percent to 1,004.66. OGX Petroleo e Gas Participacoes SA (OGXP3) plunged to a record low in Sao Paulo as two people with knowledge of the matter said the oil producer is considering filing for bankruptcy protection within a month. India’s rupee snapped a three-day gain. Polish yields sank to an eight-week low on bets Zyta Gilowska’s successor on the central bank’s rate-setting panel will be reluctant to tighten monetary policy in 2014.
Stocks declined as investors sought the safety of Treasuries after U.S. Speaker John Boehner said the country may end up in default if President Barack Obama doesn’t negotiate over the budget. Failure by the world’s largest borrower to pay its debt may throw the world into a recession that probably would become a depression. The government stopped providing nonessential services last week after lawmakers failed to agree on a spending package, boosting speculation the Federal Reserve will refrain from reducing its stimulus program this year.
“If the U.S. defaults, all bets are off because there are so many unintended consequences,” Bill Strazzullo, the chief market strategist at Bell Curve Trading, a research firm in Freehold, New Jersey, said in a phone interview. “It would be the financial market equivalent of a nuclear strike. It would make Lehman look minuscule and the trillions of dollars of securities that are priced to U.S. Treasuries would make this absolutely inconceivable as to the global effect.’”
Eight out of 10 groups in the MSCI Emerging Markets Index retreated today, led by phone and commodity shares. The benchmark measure for developing nations has dropped 4.8 percent this year to trade at 10.5 times projected earnings, compared with the valuation of 13.8 for the MSCI World Index, according to data compiled by Bloomberg.
The iShares MSCI Emerging Markets Index exchange-traded fund slipped 0.9 percent to $41.75. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, surged 11 percent to 27.11.
Brazil’s Ibovespa (IBOV) declined as OGX tumbled 13 percent. A bankruptcy filing would be carried out in Rio de Janeiro, where the company is based, said the two people familiar with the matter, asking not to be identified.
The Micex Index rose for a third day as OAO Magnit, the nation’s largest food retailer, rallied 2.7 percent. Benchmark gauges in Poland, Hungary and Turkey retreated. The yields on Poland’s two-year government bonds dropped four basis points, or 0.04 percentage point, to 3.01 percent at 4:47 p.m. in Warsaw, the lowest since Aug. 13.
Indian (SENSEX) software exporters and drugmakers climbed amid speculation their quarterly earnings will beat analyst estimates as a weak currency helps increase the value of their repatriated profits. Tata Consultancy Services Ltd. (TCS) rose to a record. The benchmark S&P BSE Sensex lost 0.1 percent, after slumping as much as 1.4 percent earlier today. The rupee dropped 0.6 percent to 61.7950 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg.
The Hang Seng China Enterprises Index (HSCEI), also known as the H-share index, declined 0.9 percent. Mainland markets are shut until tomorrow. Techtronic Industries Co. (669), a maker of power tools that gets 73 percent of sales from North America, slid 2 percent. Cnooc Ltd., China’s biggest offshore oil explorer, fell 1.1 percent as crude oil dropped.
The premium investors demand to own emerging-market debt over U.S. Treasuries declined two basis points, or 0.02 percentage point, to 332 basis points, according to JPMorgan Chase & Co.
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