Emerging-market stocks dropped the most since Aug. 2 after Bank of America Corp. cut its forecast for Chinese economic growth.
The MSCI Emerging Markets Index sank for a second day, losing 0.7 percent to 972.59. Brazil’s Bovespa stock index dropped with mining company MMX Mineracao e Metalicos SA and homebuilder Cyrela Brazil Realty SA Empreendimentos e Participacoes among the worst performers. The Shanghai Composite Index lost 1.5 percent, the most in four weeks. Israel’s shekel fell to a two-week low amid concern the nation is considering a strike against Iran.
Bank of America joined Deutsche Bank AG and Barclays Plc in cutting growth forecasts for China, the biggest developing economy, on weaker exports. Israel’s Home Front Command this week will test its nationwide text-message system to alert the public of danger, the military said yesterday, as concerns rise about a confrontation with Iran, the third-largest producer in the Organization of Petroleum Exporting Countries.
“At a time like this when trading levels are generally low, the markets are a lot more volatile when a headline number emerges,” Robert Abad, who helps oversee $41 billion in emerging-market assets at Western Asset Management Co., said in a phone interview from Pasadena, California. “The GDP forecast cut doesn’t necessarily mean a hard landing for markets as emerging markets have a lot more ammunition in terms of stimulus measures.”
The IShares MSCI Emerging Markets Index exchange-traded fund, the ETF tracking developing-nation shares, fell for the first time in seven days, retreating 0.9 percent. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, declined 3 percent.
The Bovespa index fell 0.3 percent, with Cyrela declining 1.9 percent. MMX lost 4.2 percent, its biggest slide this month.
Bank of America cut its 2012 economic growth forecast for China to 7.7 percent from 8 percent. The bank also reduced its third-quarter and fourth-quarter growth estimates to 7.4 percent and 7.7 percent respectively, from 8 percent and 8.3 percent, according to a report today from Ting Lu, an economist based in Hong Kong.
Growth prospects in developed economies are getting worse and further policy easing is constrained by China’s rebounding home prices and leadership transition, Lu wrote. There’s no recovery for export growth in sight, according to the report. Barclays Plc and Deutsche Bank AG lowered their growth forecasts for China last week.
The MSCI index pared this year’s gain to 6.1 percent. It trades for 10.7 times estimated earnings, compared with 12.9 for the MSCI World Index of developed nations, according to data compiled by Bloomberg.
Japan’s economy expanded less than economists estimated as exports and consumer spending weakened. Gross domestic product rose an annualized 1.4 percent in the three months through June, compared with a revised 5.5 percent expansion in the first quarter, the Cabinet Office said in Tokyo today. The median forecast of 24 economists surveyed by Bloomberg was for 2.3 percent growth.
China Resources Cement declined 5.9 percent in Hong Kong, the most since Nov. 30, after saying first-half net income plunged 69 percent. Hong Kong-traded shares of Anhui Conch Cement Co., the biggest Chinese cement producer, slumped 3.9 percent, the steepest drop since May 21.
China Vanke Co. and Poly Real Estate Group Co. lost more than 4 percent after the Financial News said the Chinese central bank is being “cautious” in reducing banks’ reserve-requirement ratios to prevent home prices from rising further.
Israel’s shekel weakened 1.6 percent and the TA-25 Index of shares lost 1.5 percent, the most in three weeks. Channel Two news said Aug. 10 that Prime Minister Benjamin Netanyahu and Defense Minister Ehud Barak see the window for striking Iran in an effort to halt its nuclear program closing within months. Netanyahu said yesterday that the country’s home front defense has “significantly improved.”
Egypt’s EGX30 Index rose 1.5 percent, the most among emerging-market equity gauges tracked by Bloomberg. President Mohamed Mursi ordered the retirement of the country’s two top generals yesterday, his most ambitious push yet to reclaim some of the authority the military had stripped from his office.
The extra yield investors demand to own emerging-market dollar bonds over U.S. Treasuries decreased four basis points, or 0.04 percentage point, to 319, according to the JPMorgan Chase & Co.’s EMBI Global Index.