Emerging Stocks Fall as Portugal Fuels Contagion Concern

The MSCI emerging-markets exchange-traded fund fell the most in two weeks as banking woes in Portugal reignited concern global growth remains vulnerable. Russian shares declined while Indonesian stocks soared.

Preferred shares of Brazil’s Oi SA sank to the lowest since its 1994 debut on concern its merger with Portugal Telecom SGPS SA will be undermined by the latter’s holding of debt from a unit of Espirito Santo International. OAO Mechel plunged 15 percent in Moscow. PT Bank Rakyat Indonesia (BBRI) led gains in Jakarta after Joko Widodo said unofficial counts showed him winning the presidency. The IShares MSCI Emerging Markets ETF slumped 0.5 percent to $43.94 in New York.

Espirito Santo International missed payments on some of its short-term securities, according to a July 8 statement, rekindling concern that the global economy is vulnerable to shocks as the euro region emerges from the sovereign debt crisis. PT Bank Rakyat Indonesia led an increase among Indonesian shares, in which foreign investors had plowed more than $4 billion since December on bets Widodo will boost investment in Southeast Asia’s biggest economy.

“Risk assets are pretty intrinsically tied,” Morgan Harting, a senior portfolio manager who helps oversee about $466 billion at AllianceBernstein Holding LP, said by phone from New York. “There are questions about the sustainability of the recovery in Europe, so that’s something people are watching.”

Commercial Paper

Phone company Oi slumped 14 percent, the most on the Ibovespa (IBOV), after Portugal Telecom said it holds 897 million euros ($1.2 billion) of commercial paper from a fully owned subsidiary of Espirito Santo International. The Brazilian equities gauge climbed on speculation the national soccer team’s World Cup loss will hurt President Dilma Rousseff’s re-election prospects amid bets that a change in government will reduce intervention in state-owned companies.

The Micex Index slid 1.2 percent as coking coal producer Mechel plunged after a Russian bank involved in the company’s bailout talks cast doubt on the outcome. The ruble fell 0.8 percent versus the dollar. The rand dropped 0.3 percent, the first decline in three days.

Indonesia Election

The Jakarta Composite rallied for a fourth day and the rupiah added 0.4 percent. Bank Rakyat surged 4.5 percent to a record. Widodo, known locally as Jokowi, had about a five percentage point lead, according to unofficial counts from two survey companies that declared him the winner, a projection disputed by his opponent, Prabowo Subianto.

India’s Sensex Index lost 0.3 percent after earlier rallying as much as 1.9 percent. Prime Minister Narendra Modi’s two-month-old government kept India’s budget-deficit target unchanged despite uncertainty over oil and food prices in a push to bolster the finances of the economy.

Dubai’s DFM General Index increased for the first time in four days as Emaar Properties PJSC (EMAAR), the stock with the biggest weighting on the benchmark index, jumped to a one-month high.

Thailand’s SET Index (SET) advanced for an 11th day, extending the longest rally since 2010. Junta leader Prayuth Chan-Ocha has approved new investment projects to spur growth since seizing power on May 22 amid tensions between opposition politicians and former prime minister Yingluck Shinawatra’s party.

The premium investors demand to own emerging-market debt over U.S. Treasuries added one basis point to 262, according to JPMorgan Chase & Co. (JPM) indexes.

The Hang Seng China Enterprises Index (HSCEI) of mainland companies traded in Hong Kong (700) climbed 0.3 percent after sliding 1.6 percent yesterday. The Shanghai Composite Index (SHCOMP) was little changed as data today showed China’s exports trailed analyst estimates in June, while imports rebounded from a drop in May.

To contact the reporters on this story: Natasha Doff in London at ndoff@bloomberg.net; Julia Leite in New York at jleite3@bloomberg.net

To contact the editors responsible for this story: Daliah Merzaban at dmerzaban@bloomberg.net; Nikolaj Gammeltoft at ngammeltoft@bloomberg.net Zahra Hankir, Marie-France Han

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