Emerging Stocks Decline on Chaori Default as Vale Slumps

Emerging-market stocks dropped, almost erasing a weekly gain, as China’s first onshore default sparked concern that swelling bad debt will weigh on global growth. Vale SA led a slide in commodity shares as metals fell.

The MSCI Emerging Markets Index retreated 0.4 percent to 966.72. China’s benchmark equity gauge slipped as investors weighed the implications of Shanghai Chaori Solar Energy Science & Technology Co.’s bond default on the financial system. Vale led Brazil’s Ibovespa (IBOV) to a third week of losses as iron ore slumped into a bear market, while the real declined after data showed the nation posted a trade deficit.

The number of Chinese companies whose debt is double their equity has surged since the global financial crisis, suggesting the first onshore bond default won’t be the last. Solar-cell maker Chaori failed to pay full interest on its bonds, signaling the government may not bail out companies with bad debt. The Bloomberg Base Metals 3-Month Price Commodity Index slid 2.7 percent, while copper fell the most since 2011 on concern growth at the world’s second-largest economy will falter.

“We’ve been concerned about the growth forecasts coming out of China for some time, and that’s going to weigh down on industrial metals,” Peter Sorrentino, a senior portfolio manager who helps manage about $4.7 billion at Huntington Asset Advisors in Cincinnati, said by phone. “We’re going to continue to see that theme play out.”

ETF Slumps

The iShares MSCI Emerging Markets Index exchange-traded fund fell 1.3 percent to $39.52. Fourteen out of 24 developing-nation currencies declined, led by Chile’s peso. The premium investors demand to own emerging-market debt over U.S. Treasuries dropped 0.04 percentage point to 308 basis points, according to JPMorgan Chase & Co.

Brazil’s Ibovespa extended its weekly slide as Vale fell 3.6 percent, while steelmaker Cia. Siderurgica Nacional SA and Usinas Siderurgicas de Minas Gerais SA slumped. The real dropped as data also showed foreign-exchange outflows, reducing the currency’s allure.

The ruble declined for a fourth week, while the Micex Index retreated as much as 1.2 percent in Moscow as lawmakers signaled they will accept the accession of Crimea to the Russian Federation. Benchmark gauges in Hungary, Turkey and Poland fell at least 1 percent.

On top of Chaori’s default, Chinese shares also declined before the release of trade and inflation data this weekend. Poly Real Estate Group Co. slid 1.4 percent to drag down a gauge of property developers.

India’s benchmark stock index rose to a record amid speculation the opposition Bharatiya Janata Party is gaining support before general elections that start next month. ICICI Bank Ltd. (ICICIBC) surged 6 percent, sending a measure of lenders to its biggest advance in about six months.

To contact the reporters on this story: Julia Leite in New York at jleite3@bloomberg.net; Phani Varahabhotla in Hong Kong at pvarahabhotl@bloomberg.net

To contact the editors responsible for this story: Tal Barak Harif at tbarak@bloomberg.net Rita Nazareth, Matthew Brown

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