Emerging-Market ETF Declines on IMF Amid Ukraine Unrest

The iShares MSCI Emerging Markets Index fell for a second day as the International Monetary Fund said risks of turmoil in developing nations threaten the global economy. Ukraine’s bonds plunged the most on record.

The exchange-traded fund dropped 0.7 percent to $39.02 at 4 p.m. in New York, while the MSCI Emerging Markets Index rose less than 0.1 percent to 959.09. Ukrainian bonds tumbled after as Poland warned its neighbor is on the brink of a civil war. Thailand’s baht capped the biggest two-day slide in two months after clashes between anti-government protesters and police in Bangkok killed four people and wounded at least 66. Russia’s dollar-denominated RTS Index drove losses in world stocks.

In a note prepared for central bankers and finance ministers from the Group of 20, the IMF said the recovery is still weak and “significant” risks remain. Capital outflows, higher interest rates, and sharp currency depreciation in emerging economies are a key concern, it said. Ukraine’s stocks and currency also sank after clashes in Kiev killed at least 25 people in the bloodiest episode of a three-month standoff.

“I’m still skeptical on the momentum in emerging markets,” Alan Gayle, who helps oversee about $50 billion in assets as a senior strategist at RidgeWorth Capital Management, said in a telephone interview from Atlanta today. “The political violence is becoming a wild card in the emerging markets discussion. That won’t be good for stocks.”

Investors also watched U.S. data showing housing starts slumped in January by the most in almost three years, while the Federal Reserve indicated stimulus cuts will likely continue.

Brazil, Russia

Brazil’s Ibovespa (IBOV) rose for the first time in three days as Cia. Energetica de Sao Paulo led power utilities higher amid speculation that recent losses were excessive.

Russian stocks dropped the most in six weeks as OAO Gazprom declined on concern Ukraine’s deadly clashes will disrupt gas supplies to Europe and the ruble weakened to a record. The RTS Index (RTSI$) fell 2.8 percent. The yield on Ukraine’s $1 billion of notes maturing in June increased 19 percentage points to 42 percent, an all-time high, at 10:18 p.m. in Kiev.

The Shanghai Composite Index (SHCOMP) rose to a two-month high as investors speculated smaller banks will form alliances to expand their business on mobile devices. India’s S&P BSE Sensex (SENSEX) jumped to the highest in four weeks as Infosys Ltd. (INFO) climbed. The baht posted the biggest two-day loss since December, while Philippine and Indonesian stocks rallied after JPMorgan Chase & Co. lifted its recommendation on the Southeast Asian markets.

The premium investors demand to own emerging-market debt over U.S. Treasuries fell three basis points, or 0.03 percentage point, to 337 basis points, according to JPMorgan Chase & Co.

To contact the reporters on this story: Julia Leite in New York at jleite3@bloomberg.net; Ksenia Galouchko in Moscow at kgalouchko1@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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