Emerging Stocks Fall as Turkish Shares Lead World Losses

Emerging-market stocks retreated for a second day amid concern political instability in Turkey and Thailand will escalate. The Borsa Istanbul National 100 Index posted the biggest decline among global equity gauges.

The MSCI Emerging Markets Index decreased 0.2 percent to 993.18. Turkish shares dropped 2.3 percent, while the lira tumbled to a record low after Prime Minister Recep Tayyip Erdogan’s cabinet overhaul failed to soothe investors amid a deepening corruption scandal. The Thai baht slid for an eighth consecutive day as the nation’s Election Commission urged the government to delay a February poll after protesters tried to storm a Bangkok arena where candidates were registering.

Stocks in developing nations extended this month’s decline to 2.5 percent after Turkey’s Prime Minister Erdogan tapped loyalists to rebuild his cabinet and fight a deepening corruption scandal that claimed its first victims from his inner circle. Thai’s caretaker Prime Minister Yingluck Shinawatra yesterday proposed forming a council to study political reforms as demonstrations continued into a second month.

“There’s been a bit of a heat up of the geopolitical issues, whether it’s Turkey or Thailand,” Timothy Ghriskey, who oversees $1.5 billion as the chief investment officer at Solaris Group LLC, said by phone from New York. “This all causes concern for global stability and growth.”

The iShares MSCI Emerging Markets Index exchange-traded fund fell 0.9 percent to $40.67. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, rallied 4 percent to 20.74.

Brazilian Shares

Brazil’s Ibovespa dropped the most among major equity benchmarks in the Americas amid below-average volume as projections that economic growth will slow outweighed a smaller-than-forecast increase in consumer prices. Power utility Eletropaulo Metropolitana SA sank for a third day, while voting shares of phone company Oi SA tumbled.

Turkey’s lira weakened to a record against the dollar on concerns that the widening scandal was creating instability in Erdogan’s government. The Borsa Istanbul 100 Index dropped to the lowest level on a closing basis since August 2012.

Russian shares extended this year’s gains as OAO MegaFon and VTB Group climbed. The ruble strengthened, paring its 2013 decline and heading for the zone where the central bank stops daily interventions. The currency rose 0.2 percent to 38.0836 against Bank Rossii’s target basket of dollars and euros by 6 p.m. in Moscow, reducing its 2013 drop to 9.3 percent.

Political Unrest

Thailand’s baht fell on concern prolonged political unrest will worsen outflows from its financial markets. Overseas investors sold 87 million baht ($2.7 million) more local bonds than they bought yesterday, Thai Bond Market Association data show. Global funds offloaded a net $1.2 billion of Thai equities this month, according to exchange data.

Indian stocks climbed, sending the benchmark index up most in a week, as traders closed bets amid expiry of monthly derivatives contracts. Bharat Heavy Electricals Ltd. (BHEL) surged to a five-month high, pushing up a measure of capital goods companies to a fourth day of gains. Tata Power Co. (TPWR) jumped 4.2 percent, driving up the S&P BSE India Power Index to a three-week high.

The Shanghai Composite Index (SHCOMP) lost 1.6 percent to the lowest level in four months amid investor disappointment the government didn’t take further measures to ease a cash crunch. Money-market rates eased for a third day. Yanzhou Coal Mining Co. (600188) slid to a five-year low on concern the government will cut coal use to reduce air pollution. Chongqing Changan Automobile Co., a partner of Mazda Motor Corp. (7261), sank 3.6 percent on concern rising tensions between China and Japan will hurt sales.

The premium investors demand to own emerging-market debt over U.S. Treasuries fell three basis points, or 0.03 percentage point, to 303 basis points, according to JPMorgan Chase & Co.

To contact the reporters on this story: Julia Leite in New York at jleite3@bloomberg.net; Sharon Cho in Seoul at ccho28@bloomberg.net

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

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