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Emerging-Market Stocks Fall on European Debt, Hungary Concerns

Emerging-market stocks declined for a second day after a jump in French and Hungarian borrowing costs signaled a widening of European debt concerns.

The MSCI Emerging Markets Index fell 0.5 percent to 932.44 at the close in New York. The BUX Index slid 2.1 percent in Budapest, taking its three-day decline to 5.3 percent on concern the International Monetary Fund and the European Union won’t resume aid talks. Brazil’s benchmark index sank 1.4 percent as industrial output contracted the most in two years. The Hang Seng China Enterprises Index advanced 0.5 percent in Hong Kong.

Yields at French and Hungarian bond auctions rose compared to previous sales. German retail sales slipped 0.9 percent in November, according to the Federal Statistics Office. Economists had forecast gains of 0.2 percent.

“Europe has real problems” and “policy makers have not got on top of that so I think we can expect further volatility,” Geoff Lewis, head of investment services at JPMorgan Asset Management in Hong Kong, said in a Bloomberg Television interview.

The EU and the IMF broke off aid talks with Hungary last month as the government prepared legislation that threatened to undermine the independence of the central bank, with no plans to return to negotiations. Standard & Poor’s is reviewing the top credit ratings of both France and Germany.

The U.S. benchmark Standard & Poor’s 500 Index rose for a third day, adding 0.3 percent, while European shares fell 0.9 percent.

Borrowing Costs

France sold 4.02 billion euros ($5.2 billion) of benchmark 10-year bonds at an average yield of 3.29 percent, up from 3.18 percent in a sale on Dec. 1. Hungary sold 35 billion forint ($140 million) in 1-year bills, 10 billion forint less than the planned amount. The average yield was 9.96 percent, compared with 7.91 percent at the last sale of that maturity on Dec. 22 and the highest since April 2009.

OTP Bank Nyrt., Hungary’s largest lender, slid 2 percent in Budapest. Hungary needs a deal as soon as possible to help maintain market financing and is ready to discuss the conditions, Tamas Fellegi, the minister assigned to lead the talks, told reporters today.

“Fellegi’s comments are aimed at providing reassurance, but I think the market will adopt a seeing-is-believing approach,” Timothy Ash, a London-based economist at Royal Bank of Scotland Group Plc, said in a e-mailed comment. “Market trust in this administration is now at rock bottom levels.”

Bovespa Falls

The Bovespa declined for the first time this year in Sao Paulo after Brazil’s industrial output fell 2.5 percent in November from a year earlier, according to the national statistics agency. That was the biggest contraction since October 2009, fueling concern the slowdown in Brazil’s economy is deepening.

Tecnisa SA dropped 2.4 percent after the Brazilian homebuilder said contracted sales fell 46 percent in December and it didn’t meet a target for new projects last year. Cielo SA, Brazil’s biggest card-payment processor by market value, tumbled 1.4 percent after being lowered to “neutral” from “outperform” at Credit Suisse Group AG, which cited slower growth and more competition.

PKO Bank Polski SA, Poland’s biggest lender, tumbled 2.6 percent in Warsaw. The PX Index fell 2.8 percent in Prague.

The Micex Index fell 0.9 percent in Moscow, the first daily loss since Dec. 28.

The ISE National 100 Index slid 0.6 percent in Istanbul and the FTSE/JSE Africa All Share Index retreated 0.9 percent in Johannesburg.

The Polish zloty fell 1.4 percent and the forint fell 0.7 percent against the dollar.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell one basis point, or 0.01 percentage point, to 417, according to JPMorgan Chase & Co.’s EMBI Global Index.

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