Emerging Stocks Drop as Chinese Shares Tumble on Growth Concern

Emerging-market stocks fell for a second day as concern that slumping property prices will squelch growth sank Chinese equities and the benchmark gauge in Dubai entered a bear market.

Arabtec Holding Co. slid to a three-month low, dragging Dubai’s DFM General Index down 20 percent from a May 6 peak. Bank of China Ltd. extended its four-day slump to 9.6 percent as a gauge of Hong Kong-traded Chinese shares dropped amid concern that slumping property prices and higher money-market rates will weigh on expansion in the world’s second-largest economy. The Ibovespa slumped to a two-week low after economists lowered their forecasts for Brazilian gross domestic product growth.

The MSCI Emerging Markets Index fell 0.1 percent to 1,042.63. While better-than-forecast Chinese manufacturing data spurred early gains in stocks, the advance was wiped out amid investor speculation that falling property prices and tighter liquidity in the banking system will weigh on economic growth, said Huaxi Securities Co.

Factors including the Chinese data will “continue to drive markets on an ad-hoc basis,” Simon Quijano-Evans, London-based head of emerging-markets research at Commerzbank AG, said by e-mail. “With liquidity quite low at the moment and looking to remain low through the summer months, markets are on the watch for any new pieces of information.”

Dubai Slump

A preliminary Chinese Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 50.8, exceeding the 49.7 median estimate of analysts surveyed by Bloomberg News and a final reading of 49.4 in May.

The premium investors demand to own developing-nation debt over U.S. Treasuries fell two basis points to 263 basis points, according to JPMorgan Chase & Co. indexes. Six out of 10 industry groups in the MSCI Emerging Markets Index fell, led by telecommunications and consumer staples companies.

The DFM retreated 4.3 percent to the lowest level since March 19, and the biggest slide among 93 gauges monitored by Bloomberg. Arabtec tumbled 9.9 percent after the largest listed construction company in the United Arab Emirates fired hundreds of people following the departure of its chief executive officer last week, according to people familiar with the situation, who asked not to be identified because they weren’t authorized to speak publicly.

“There is confusion in the market and I call it Arabtec fever,” Wadah Al Taha, chief investment officer of Dubai-based Al Zarooni Group, said by phone.

Brazil Outlook

Shares in Dubai had soared since January 2012 amid a real-estate recovery and boom in trade and tourism in the Middle East business hub. The U.A.E. central bank said June 8 there are signs the property market is overheating.

The FTSE/JSE Africa All Shares Index in Johannesburg fell 0.5 percent. Naspers Ltd., the largest company on the continent by market value, lost 5 percent after full-year profit rose at the slowest pace in at least six years.

The Ibovespa dropped 0.8 percent as MRV Engenharia e Participacoes SA led a drop in homebuilders, sinking 2.6 percent. Economists lowered their 2014 growth forecast for Brazil to 1.16 percent from 1.24 percent a week ago, according to the median of about 100 estimates in a central bank survey published today.

The Sofix Index climbed 2.9 percent in Sofia, after slumping the most in 16 months on June 20. Bulgaria’s central bank will increase the capital of Corporate Commercial Bank AD and a subsidiary after they ran out of liquidity as the government starts investor meetings in Europe for a possible bond sale.

Ukraine Conflict

The MSCI Emerging Markets Index has gained 4 percent this year and trades at 10.9 times 12-month projected earnings, according to data compiled by Bloomberg. The MSCI World Index has risen 5.2 percent and is valued at a multiple of 15.2.

The Micex Index closed unchanged after fluctuating between a gain of 0.9 percent and a loss of 0.5 percent. The ruble rose 0.9 percent against the dollar. Pro-Russian rebels in Ukraine announced a cease-fire, three days after President Petro Poroshenko called a truce to end the crisis that’s left hundreds dead in the east of the former Soviet republic.

Poroshenko is seeking to quell violence in the Luhansk and Donetsk regions that’s left hundreds dead. The yield on Ukraine’s July 2017 dollar bonds rose nine basis points to 9.67 percent, increasing for a third day.

The Hang Seng China Enterprises Index (HSCEI) slid the most since April. Bank of China sank 2.6 percent after the nation’s seven-day repurchase rate, a gauge of cash availability, rose to a seven-week high. The selloff in Chinese stocks was amplified by concern a democracy poll in Hong Kong may strain ties with the mainland, according to Asian Capital Holdings Ltd. and Ample Capital Ltd.

To contact the reporters on this story: Lyubov Pronina in London at lpronina@bloomberg.net; Harry Suhartono in Jakarta at hsuhartono@bloomberg.net

To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net Ash Kumar, Richard Richtmyer

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