Emerging-Market Stocks Decline a Second Day on Valuation Concern

Emerging-market stocks fell for a second day on concern the rally that pushed valuations to the highest level since 2011 was excessive considering the outlook for global economic growth.

New China Life Insurance Co. (1336) sank as a gauge of Hong Kong- traded Chinese shares fell before the release of industrial production and retail sales data tomorrow. A measure of technology shares dropped the most in two weeks. Arabtec Holding Co. (ARTC) rose 11 percent in Dubai as the builder said it hasn’t filed to delist its stock. The lira gained 0.2 percent and equities rebounded in Istanbul as a newspaper reported that captives from Turkey’s Mosul consulate in Iraq are due to be released tonight.

The MSCI Emerging Markets Index fell 0.1 percent to 1,054.74. Stocks dropped from a 13-month high yesterday after a rally pushed valuations to the strongest level since April 2011. China is set to release data on industrial production and retail sales tomorrow amid concern the nation may miss a 2014 economic growth target.

“Valuations have converged on long-term averages,” Nick Paulson-Ellis, co-head of global emerging markets at Espirito Santo Investment Bank in London, said by e-mail. Chinese stocks are facing pressure amid economic growth concerns, he said.

The World Bank, in a report dated June 10, lowered its 2014 global growth forecast to 2.8 percent from 3.2 percent while calling on developing nations to strengthen their economies before the Federal Reserve raises U.S. interest rates. The Washington-based lender cut its forecast for China’s expansion to 7.6 percent from 7.7 percent.

Turkish Hostages

The developing-nation gauge’s 14-day relative-strength index is 67, near the level of 70 that indicates to some analysts a security is poised to fall. The measure has gained 5.2 percent this year and is valued at 11 times projected 12-month earnings, while the MSCI World Index is up 3.9 percent and trades at a multiple of 15.1.

Stock markets in Brazil and Russia were closed for holidays.

Turkey’s stocks rallied 1 percent after earlier dropping as much as 1.5 percent. Militants from the Islamic State in Iraq and the Levant, or ISIL, which broke ranks with al-Qaeda during fighting in Syria, took Turkish diplomats captive in Mosul yesterday. The hostages are expected to be back in Turkey later today, Yeni Safak newspaper reported, without saying how it got the information.

Turkey’s benchmark equity gauge sank 3.3 percent yesterday as concern mounted that the country may get dragged into the escalating turmoil in neighboring Iraq. Iraq’s ISX General Index lost 1.7 percent today, pushing a six-day slump to 9.4 percent.

Chinese Stocks

The lira gained 0.2 percent against the dollar as data showed Turkey’s current-account gap narrowed more than 40 percent in April from a year ago to $4.79 billion.

The Hang Seng China Enterprises Index (HSCEI) slid 0.7 percent, the most since May 7, as New China Life lost 1.6 percent. The Shanghai Composite Index slipped 0.2 percent.

Six of 10 industry groups in the emerging-market measure fell, led by technology companies, which retreated 0.5 percent from a record high.

Dubai’s DFM General Index rose 3.7 percent, the most among global equity indexes tracked by Bloomberg, as Arabtec jumped after a four-day, 30 percent rout.

“The concerns over Arabtec delisting were addressed today by the management, which improved the sentiment and removed potential concerns,” Tariq Qaqish, the head of asset management at Dubai-based Al Mal Capital PSC, said by phone.

The premium investors demand to own emerging-market debt over U.S. Treasuries increased six basis points to 265, according to JPMorgan Chase & Co. indexes.

To contact the reporter on this story: Natasha Doff in London at ndoff@bloomberg.net

To contact the editors responsible for this story: Daliah Merzaban at dmerzaban@bloomberg.net Zahra Hankir, Richard Richtmyer

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