Emerging Stocks Decline as Iraq Violence Stokes Growth Concern

Emerging-market stocks posted their first weekly drop in June on concern higher oil prices spurred by Iraqi violence will curb economic growth

The MSCI Emerging Markets Index slipped 0.5 percent to 1,044.70, taking this week’s loss to 0.4 percent. Poland’s zloty sank amid speculation that leaked conversations between a government minister and the central bank chief may trigger early elections. South Korea’s Kospi index tumbled as automakers declined.

A gauge of commodities led by oil and gold reached a 10-month high after the U.S. said it will send military advisers to Iraq as violence escalates in the OPEC producer. Brent crude posted its second week of gains as the advance of Sunni fighters from a breakaway al-Qaeda group raised the specter of sectarian civil war in the nation.

“Worries about Iraq have had an impact” on assets, John Lomax, an emerging-market strategist at HSBC Holdings Plc, said by phone from London. “In Russia we’ve had two forces at work this week, one has been the oil price, and the other has been the headline news flow on Ukraine.”

The Micex fell 0.6 percent in Moscow, pushing its weekly decline to 1 percent. The UX Index lost 0.9 percent in Kiev, the most since June 17. After the close of trading, Ukraine’s Interior Ministry said on its website that the government is halting a military offensive against pro-Russian rebels in the east from today to June 27. Stocks had tumbled as NATO condemned Russia for massing new troops, casting a pall over cease-fire efforts.

Brazilian Stocks

OAO Mechel (MTLR), Russia’s second-most indebted company, extended losses, falling 0.4 percent as concern mounted that a rescue plan for the raw-material producer will dilute shareholders and shift control to the government.

The emerging-markets gauge has risen 4.2 percent this year and trades at 10.9 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has gained 5.2 percent in the period and is valued at 15.2 times. An index tracking developing-nation currencies slipped for the first time in three days.

The Ibovespa fell 1 percent in Sao Paulo. Brazilian state-run companies including oil producer Petroleo Brasileiro SA tumbled after President Dilma Rousseff held her lead in an election poll.

The zloty weakened 0.5 percent against the euro. Wprost magazine released recordings on June 14 in which central bank Governor Marek Belka was heard discussing with Interior Minister Bartlomiej Sienkiewicz steps to boost the economy and help the government win an election next year.

Iraq Violence

Belka must consider resigning after the scandal, Andrzej Rzonca, a member of the Monetary Policy Council, told the Gazeta Wyborcza newspaper in an interview.

Turkey’s Borsa Istanbul 100 Index slipped 0.8 percent, led by Turkiye Garanti Bankasi AS. Iraqi bonds posted a second weekly decline, with the yield up 33 basis points at 7.26 percent. In announcing that as many as 300 special operations personnel may work with Iraqi forces to blunt the insurgency that threatens to fracture the country, U.S. President Barack Obama stressed the limits of the U.S. commitment. He placed the onus on Iraqi leaders to resolve the crisis.

All 10 industry groups in the developing-nation gauge fell, led by technology and consumer-discretionary companies. The premium investors demand to own developing-nation debt over U.S. Treasuries fell two basis points to 263, according to JPMorgan indexes.

South Korea’s Kospi index dropped 1.2 percent, the most since April 25, as foreign investors sold shares while higher oil prices dragged down automakers.

The Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in Hong Kong gained 0.4 percent. China’s Shanghai Composite Index (SHCOMP) rose 0.1 percent as technology and property stocks rebounded after losses triggered by concern the resumption of new share sales will divert funds.

To contact the reporters on this story: Nguyen Kieu Giang in Hanoi at giang1@bloomberg.net; 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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