Most Emerging Stocks Drop on German Confidence; Currencies Gain

July 16 (Bloomberg) -- Most emerging-market stocks fell as a surprise decline in German investor confidence damped the outlook for Europe’s largest economy. Developing-nation currencies gained against the dollar as bond yields fell.

America Movil SAB, the wireless carrier controlled by Mexican billionaire Carlos Slim, fell to a three-week low. The Polish zloty rose 1.6 percent as the rupee strengthened 1 percent after India raised interest rates. OAO Gazprom, Russia’s gas export monopoly, rose to the highest since May 22.

The MSCI Emerging Markets Index rose less than 0.1 percent to 953.02, as four stocks gained for every three that fell, after data from the ZEW Center for European Economic Research showed the unexpected drop in German confidence in July. Investors will be looking for signals about the outlook for the Federal Reserve’s $85 billion in monthly bond purchases when Chairman Ben S. Bernanke speaks before U.S. lawmakers tomorrow.

“The German sentiment was a little bit weak, and I think that put a bit of pressure on emerging-market stocks,” Jeff Papp, a senior analyst at Oberweis Asset Management Inc., which manages $700 million in assets, said in a telephone interview from Lisle, Illinois. “And you’re going to see a lot of adjusting around Bernanke again.”

Bernanke said on July 10 that the U.S. needs “highly accommodative monetary policy for the foreseeable future,” after last month saying the central bank may begin to slow its bond buying program this year and end it in 2014 if economic growth meets policy makers’ goals.

Brazil, Mexico

The iShares MSCI Emerging Markets Index exchange-traded fund gained 0.4 percent to $39.50. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, climbed 2.9 percent to 26.98.

Brazil’s Ibovespa gained, erasing earlier losses as homebuilder MRV Engenharia & Participacoes SA climbed 3.7 percent after reporting an increase in quarterly sales. Iron ore producer Vale SA rose 1.9 percent to a three week high.

The Mexican IPC gauge slumped 1.6 percent, the worst performer among 94 major benchmarks tracked by Bloomberg, as America Movil slid 2.4 percent. The wireless operator sold the equivalent of 1.1 billion euros ($1.4 billion) of bonds denominated in euros and pounds yesterday.

Indian equities tumbled the most in two weeks after the Reserve Bank of India raised two interest rates yesterday to steady the rupee after its drop to a record. Stocks most tied to economic growth led the declines, with ICICI Bank Ltd. plunging the most since February 2011, leading its peers lower. The S&P BSE Bankex, a measure of 13 lenders, sank 4.8 percent, the most since July 2009. Yes Bank Ltd. dropped 9.9 percent.

Rate Outlook

The RBOC raised rates and said it will conduct open-market sales of government debt totaling 120 billion rupees ($2 billion) on July 18, a step that would drain cash from an economy expanding at the slowest pace in a decade.

“Banks’ profitability will take a hit after this rate hike,” Vishal Narnolia, a Mumbai-based banking analyst at SMC Global Securities Ltd., said by phone. “The lenders will now have to raise deposit rates or borrow funds from money markets at higher rates. The higher cost of funds cannot be fully passed on, as lending growth is already at a three-year low.”

The rupee advanced to its strongest since June 21. The Czech koruna rose 1.1 percent and Turkey’s lira added 0.7 percent. The Brazilian real weakened 1.5 percent after a measure of inflation slowed.

The lira appreciated to 1.9204 per dollar, its second day of gains. Credit Suisse Group AG recommended buying the currency, with a three-month target of 1.89 per dollar, down from 2 earlier, on speculation the central bank will take steps to support the currency.

Turkish Stocks

The “global environment turned supportive for high-yielding emerging-market currencies due to the stabilization in Chinese growth, a pickup in emerging-markets growth momentum in the second half of 2013 and Fed tapering now priced in,” Bernd Berg, an emerging-market strategist at Credit Suisse in Zurich, said by e-mail today. This is “supportive” for the lira, Brazilian real, Mexican peso and Polish zloty, he said.

The Borsa Istanbul Stock Exchange National 100 Index lost 0.7 percent, its first decline in four days. Haci Omer Sabanci Holding AS, the nation’s second-largest industrial group dropped 2.8 percent. Russian equities rose a fourth day, the longest stretch of gains since May, as Gazprom climbed 1.7 percent.

South Africa

The FTSE/JSE Africa All Share Index dropped 0.9 percent in Johannesburg. AngloGold Ashanti Ltd., the world’s third-biggest producer of the metal, declined 2.5 percent to the lowest since April 2001. The company cut its output forecast for this year and will write down the value of assets by as much as $2.6 billion after reducing gold-price forecasts.

The MSCI Emerging Markets gauge has lost 9.7 percent this year and trades at about 10 times its 12-month projected earnings. The MSCI World Index of developed nations has gained 12 percent in 2013 and trades at 13.8 times.

The Hang Seng China Enterprise Index fell 0.3 percent in Hong Kong. The Shanghai Composite Index added 0.3 percent.

Polysilicon producers gained, with GCL-Poly Energy Holdings Ltd. climbing 6.7 percent, the most in a month in Hong Kong, and OCI Ltd. advancing 5.2 percent in Seoul. China, the world’s biggest maker of solar panels, plans to increase the nation’s solar installed capacity fivefold to more than 35 gigawatts by 2015, the State Council said yesterday.

The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed four basis points, or 0.04 percentage point, to 343 basis points, according to JPMorgan Chase & Co.’s EMBIG index.

To contact the reporters on this story: Maria Levitov in London at mlevitov@bloomberg.net; Julia Leite in New York at jleite3@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net