Emerging Stocks Decline on Earnings as Korean Air Slumps

Emerging-market stocks dropped, trimming the first back-to-back monthly gain since January, amid concern corporate earnings will falter. The Kospi Index slid as Korean Air Lines Co. plunged the most in two years.

The MSCI Emerging Markets Index declined 0.8 percent to 1,034.42, paring its October advance to 4.8 percent. South Korea’s biggest carrier slid 11 percent on concern it may provide further funding to its affiliate Hanjin Shipping Co. Brazilian plane builder Embraer SA (EMBR3) declined 0.8 percent, while China Minsheng Banking Corp. drove the Shanghai Composite Index lower after earnings missed analysts’ estimates. Malaysia’s ringgit posted its best month since January 2012.

Almost 60 percent of the companies that reported quarterly results in the gauge for developing nations missed analysts’ earnings projections, according to data compiled by Bloomberg. Economists at Citigroup Inc. and Barclays Plc said yesterday’s Federal Reserve policy statement opens the possibility of reduced bond purchases as soon as December. Economists surveyed by Bloomberg Oct. 17-18 had predicted the U.S. central bank would begin paring economic stimulus in March.

“EM is following the soft close in the U.S. yesterday, which was due to the Fed sounding less dovish than what the market was expecting,” Michael Wang, an emerging-markets strategist at Amiya Capital LLP in London, said by e-mail. “The concern is that growth is not looking that robust and the Fed may still taper in December, which would be bad for EM from a flows perspective.”

All 10 groups in the MSCI Emerging Markets Index retreated today, led by health-care and industrial shares. The broad measure trades at 10.5 times projected earnings, compared with the valuation of 14.3 for the MSCI World Index.

Emerging ETF

The iShares MSCI Emerging Markets Index exchange-traded fund declined 1 percent to $42.46. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, climbed 1.1 percent to 21.83.

Brazil’s Ibovespa gained, capping its fourth monthly advance, as Gerdau SA (GGBR4) led steelmakers higher after reporting quarterly earnings that exceeded analysts’ estimates. Embraer slumped to the lowest level since April.

Russian stocks dropped the most in a week as OAO MegaFon slid 3.4 percent after Citigroup recommended selling the mobile operator. The Borsa Istanbul National 100 Index dropped 1.7 percent, the most among major developing-nation gauges, as Turkiye Garanti Bankasi AS paced losses in lenders. Benchmark gauges in the Czech Republic and Poland also retreated.

Soured Loans

The Shanghai Composite Index capped its first monthly loss since June as earnings at banks and consumer-staple producers disappointed investors. China Minsheng Banking slid 2.4 percent.s. Inner Mongolia Yili Industrial Group Co. and Guangzhou Baiyunshan Pharmaceutical Holdings Co. both slumped by the daily 10 percent limit after posting earnings.

China’s top four banks posted their biggest increase in soured loans since at least 2010 as a five-year credit spree left companies with excess manufacturing capacity and slower profit growth. Bad debts at Industrial & Commercial Bank of China Ltd. (1398), China Construction Bank Corp., Agricultural Bank of China Ltd. and Bank of China Ltd. rose 3.5 percent in the third quarter to a combined 329.4 billion yuan ($54 billion), data compiled from earnings reports shows.

The Kospi Index posted its biggest loss in two months as foreign investors cut holdings for the first time in 45 days. Korean Air sank after saying its shipping affiliate has a “temporary” liquidity shortage.

India, Malaysia

Indian (SENSEX) equities climbed, capping their biggest monthly gain since January 2012, amid optimism better-than-estimated company earnings will accelerate capital inflows. Bank of India soared the most in six years, sending a gauge of lenders to a three-month high, after its profit beat estimates.

The ringgit advanced 3.3 percent in October, the best performance among 31 major currencies tracked by Bloomberg, after the government announced a consumption tax and scrapped sugar subsidies to bolster revenue, allaying concern about a credit-rating downgrade.

The premium investors demand to own emerging-market debt over U.S. Treasuries fell two basis points, or 0.02 percentage point, to 313 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

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

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