Emerging-Market Stocks Drop as EU, U.S. Toughen Russia Sanctions

Emerging-market stocks fell as the European Union and U.S. said they’re imposing tougher sanctions against Russia to punish President Vladimir Putin for supporting Ukrainian rebels.

The Ibovespa fell the most in a month after Brazilian industrial production declined. India’s S&P BSE Sensex Index dropped for a second day as motorcycle manufacturer Hero MotoCorp Ltd. slid 1.6 percent. Stocks in South Korea and China advanced as automakers and technology companies gained.

The iShares MSCI Emerging Markets ETF fell 0.6 percent to $44.82 in New York. The Market Vectors Russia ETF, the largest U.S. dedicated exchange-traded fund tracking the nation’s companies, tumbled 2.1 percent to $23.85. Developing-market stocks erased gains as EU governments agreed to prevent Russian state-owned banks from selling shares or bonds in Europe and restricted the export of equipment to modernize the oil industry. The U.S. expanded sanctions to include more lenders.

“There’s some reaction to the Russia sanctions, especially as it relates to China exports to the region,” Jeff Papp, a senior analyst at Oberweis Asset Management Inc. said by phone from Lisle, Illinois. “Especially for emerging markets, geopolitical risk is the main theme. Strength in the China market has been outweighing some of the negatives related to the sanctions, but not today.”

Brazil, India

The U.S. and Europe have imposed sanctions to punish President Vladimir Putin for supporting pro-Russian rebels in eastern Ukraine. While the world’s eighth-largest economy expanded 0.9 percent in the first quarter, Russian growth will slow to 0.5 percent for 2014 overall, according to the median forecast of analysts surveyed by Bloomberg.

The Ibovespa dropped 1 percent in Sao Paulo, falling for a third day as a decline in Brazilian industrial production added to concern that growth in Latin America’s largest economy will falter. The Sensex slid 0.5 percent as Hero MotoCorp declined the most in two weeks.

The MSCI Emerging Markets Index was little changed at 1,080.54, with 310 stocks lower and 289 higher. Five industry groups fell, while five rose.

Losses in the developing-nation measure were limited as stocks in South Korea and China rallied. Kia Motors Corp. (000270) and Hyundai Motor Co. (005380) jumped more than 4 percent on speculation they will boost dividend payouts. Samsung Electronics Ltd. climbed 2.1 percent.

The Hang Seng China Enterprises Index advanced 0.5 percent. The index entered a bull market yesterday after rising 20 percent from this year’s low. The Shanghai Composite Index (SHCOMP) added 0.2 percent.

The emerging-markets measure has gained 7.7 percent this year and trades at 11.2 times projected 12-month earnings. The MSCI World index has risen 5 percent this year and is valued at a multiple of 15.

The premium investors demand to own emerging-market debt over U.S. Treasuries increased two basis points to 267 today, JPMorgan Chase & Co. indexes show.

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: Stephen Kirkland at skirkland@bloomberg.net; Michael Patterson at mpatterson10@bloomberg.net Richard Richtmyer

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