Emerging-Market Stocks Post Weekly Drop on Portugal Debt Concern

Emerging-market stocks posted a weekly decline amid renewed concern that financial risks in Europe are worsening. Indonesian equities slid from a 13-month high. Russia’s ruble weakened.

PT Bank Rakyat Indonesia (BBRI) sank 1.5 percent from a record as the Jakarta Composite Index slid the most in six weeks on concern investment will be delayed until a winner is declared in Indonesia’s disputed presidential election. The won weakened for a sixth day versus the dollar, the longest slump since January. The Ibovespa gained in Sao Paulo as phone company Oi SA rallied.

The MSCI Emerging Markets Index lost 0.3 percent this week to 1,058.81. The gauge reached a 16-month high on July 8, pushing valuations to the strongest since 2011. Missed debt payments by a company linked to Portugal’s second-largest lender spurred concern that Europe remains vulnerable to shocks in the wake of its sovereign-debt crisis.

“Markets have been complacent about the risks in Europe and yesterday was a bit of a wake up call,” Tony Hann, head of emerging-market equities at Blackfriars Asset Management Ltd., said by e-mail. “It’s a reminder that problems underlying the eurozone crisis have in many cases just been kicked down the road and not solved. A resurfacing of the issues would push up risk premia, which is bad for emerging markets.”

Financial Stress

Banco Espirito Santo SA, Portugal’s No. 2 bank by market value, said it has exposure of 1.18 billion euros ($1.6 billion) to companies of Grupo Espirito Santo. It’s waiting for the release of that group’s restructuring plan and doesn’t expect any losses will “compromise the compliance with the regulatory capital requirements.” The lender provided the update after one of the group’s companies missed some short-term debt payments.

Seven out of 10 industry groups in the developing-nation gauge fell today, led by industrial and technology companies. The Micex Index gained 0.3 percent in Moscow as gains in energy suppliers including Federal Grid Co. and Federal Hydrogenerating Co. offset a 10 percent drop in mining company OAO Mechel.

Russia’s ruble weakened 0.7 percent, while currencies in the Philippines and South Korea lost at least 0.4 percent. A Bloomberg gauge tracking 20 emerging-market currencies depreciated for a second day. The premium investors demand to own developing-country debt over U.S. Treasuries widened two basis points to 264 basis points.

‘Risk-Off Trading’

Portugal’s debt issue has “surely hurt sentiment across all financial markets and should trigger some risk-off trading for the near term,” said Thebes Lo, Hong-Kong based vice president at Kim Eng Securities Ltd.

The Ibovespa gained 0.4 percent as Oi surged 13 percent. The stock gained amid speculation Portugal Telecom SGPS SA may have to agree to a less favorable share swap ratio to win regulatory approval for its merger with the Brazilian company.

Bank Rakyat retreated the most in a month, ending a four-day rally. The Jakarta Composite Index (JCI) tumbled 1.3 percent on concern investments will be delayed until a clear winner emerges from the nation’s disputed presidential election. The gauge jumped 1.5 percent yesterday as Joko Widodo said unofficial counts showed him winning the nation’s presidency. Rival candidate Prabowo Subianto disagreed, saying counts done by companies he used for guidance showed him leading.

Turkey Deficit

The Borsa Istanbul 100 Index gained 1 percent, extending the biggest weekly advance since May. Turkey’s current-account deficit narrowed more than analysts predicted in May, according to data released today.

Infosys Ltd. (INFO), India’s second-largest software services company, rose 1 percent after first-quarter net income beat analyst estimates. The S&P BSE Sensex Index fell 1.4 percent.

The MSCI Emerging Markets Index has risen 5.6 percent this year and trades at 11 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has gained 4.5 percent and is valued at a multiple of 15.

The Shanghai Composite Index (SHCOMP) rose 0.4 percent on speculation local governments are loosening property curbs to prevent economic growth from slowing further. Poly Real Estate Group Co. climbed 2.6 percent after the official Xinhua News agency reported that Jinan has become the latest city to scrap home purchase limits.

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

To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net; Daliah Merzaban at dmerzaban@bloomberg.net Daliah Merzaban, Richard Richtmyer

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