Emerging Stocks Head for Worst May Since 1998 on Europe

Emerging-market stocks slid, posting the biggest May drop since 1998, on concern the European debt crisis will hurt Asian exporters, the Indian economy grew less than estimated and U.S. reports disappointed.

The MSCI Emerging Markets Index retreated 0.2 percent to 906.30 at the close in New York. Telecommunication and energy companies posted the biggest monthly declines since 2008 as OAO Rostelecom, Russia’s dominant fixed-line operator, sank to the lowest in two years. Russia’s Micex Index fell while Brazil’s Bovespa advanced, paring its monthly loss to the biggest since October 2008.

The MSCI gauge slumped 12 percent this month, for its worst May performance since a 14 percent slide in 1998, on concern Europe’s debt crisis and a slowing Chinese economy will curb earnings for exporters. Indian government data showed the nation’s economy grew 6.5 percent in the year ended March 31, less than the 6.7 percent projection in a Bloomberg survey. In Spain, the cost of insuring against sovereign default rose to a record yesterday.

“There is no obvious end game in sight really for Europe and there is a whole multitude of concern out there about China,” John-Paul Smith, emerging market strategist at Deutsche Bank AG, said by phone from London today. “Exporters will clearly be hurt because external demand is going to be weak, and for commodities exporters it’s the same thing.”

First-time claims for jobless benefits in the U.S. increased by 10,000 to 383,000 in the week ended May 26 from a revised 373,000 the prior week, the Labor Department said today. The initial claims exceeded the median estimate of 370,000 in a Bloomberg News survey of economists.

Sector Losses

The Standard & Poor’s GSCI Spot Index of 24 raw materials retreated 1.2 percent to 596.2, the lowest since Oct. 5.

Energy companies in the emerging markets index slipped 0.4 percent in trading, extending the group’s decline to 17 percent in May. Telecommunications companies fell 1.1 percent today and retreated 12 percent in the month. The monthly drops were the biggest since October 2008.

The MSCI emerging-markets gauge has fallen 1.1 percent this year, compared with a 0.4 percent decline in the MSCI World Index of developed nations.

Rostelecom, based in Moscow, dropped 5.7 percent to the lowest level since July 2010, after MSCI Inc. cut the stock’s weighting in its Russia Index.

Russia’s Micex Index retreated 0.2 percent, pushing its monthly decline to 11 percent. Shares on the index have fallen for three consecutive months, the longest losing streak since 2010. OAO MRSK Holding fell 6.3 percent to the lowest level since July 2009. The company’s shares posted a 44 percent drop in May.

Bovespa Gains

The Bovespa gained 1.3 percent, paring its monthly retreat to 12 percent, the most since October 2008. Itausa - Investimentos Itau SA added 6.1 percent, the most since Nov. 30, to lead advances in the index.

Indonesia’s Jakarta Composite index tumbled 2.2 percent, the most among Asian benchmark indexes, as PT Bumi Resources, Asia’s largest power-station coal exporter, sank 12 percent. The Jakarta, Indonesia-based company posted a monthly retreat of 30 percent, the most since January 2009.

The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong fell less than 0.1 percent while the Shanghai Composite Index slid 0.5 percent.

The Philippine Stock Exchange Index rose 1.5 percent to close at its highest since May 11 after the government said first-quarter gross domestic product grew 6.4 percent. It was the economy’s fastest expansion since 2010 and it topped all 21 estimates in a Bloomberg News survey.

The FTSE/JSE Africa All Share Index advanced 0.5 percent in Johannesburg, paring its monthly drop to 3.7 percent, the steepest since September.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose five basis points, or 0.05 percentage point, to 428, according to JPMorgan Chase & Co.’s EMBI Global Index.

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