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Emerging-Market Stocks Retreat on China’s Outlook as Real Drops

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Dec. 11 (Bloomberg) -- Emerging-market stocks declined the most in a week as Chinese equities sank amid speculation the government will lower economic growth targets. Brazil’s real led declines in currencies.

China Life Insurance Co. paced a 1.5 percent drop in the Shanghai Composite Index. China Shenhua Energy Co. and China Coal Energy Co. sank 3.9 percent in Hong Kong on government measures to curb consumption of the fuel in 2014. The real weakened 1.5 percent versus the dollar, depreciating for the first time in five days while the Ibovespa retreated to the lowest in a week. The yield on Ukraine benchmark dollar bonds fell for the first time in four days.

The MSCI Emerging Markets Index slid 1 percent to 1,002.55 in New York, taking this month’s loss to 1.5 percent. China’s central economic work conference, which is expected to end tomorrow, will set the tone for macroeconomic policy and decide major targets for 2014. Investors are considering the outlook for stimulus before next week’s Federal Reserve meeting after U.S lawmakers unveiled a budget deal.

“Tapering will continue to be a lingering concern for emerging markets,” Chakrit Puechpan, head of domestic equities at Bangkok-based MFC Asset Management Pcl, which has about $12 billion of assets, said by phone. “China’s economic recovery is also a main focus of investors because the country is a driver of growth for developing countries.”

The iShares MSCI Emerging Markets Index exchange-traded fund sank 2.2 percent to $41.09. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, increased 6.4 percent to 26.01.

Spending Cuts

U.S. Budget negotiators unveiled an agreement to ease automatic spending cuts by about $60 billion over two years and reduce the deficit by $23 billion, breaking a three-year cycle of fiscal standoffs. The deal comes after the jobless rate fell to a five-year low and more economists predicted the Fed will cut stimulus at its meeting next week.

“Whether or not the Fed does decide to taper this month, we can envisage trading positions being reduced in the run up,” Daniel Salter, head of equity strategy at Renaissance Capital in London, said by e-mail.

All 10 industry groups in the MSCI Emerging Markets Index dropped, led by materials and energy companies. China Mobile Ltd. slid 3.2 percent, the biggest drag on the telecommunications gauge, extending a decline yesterday after Barclays Plc cut its rating on the stock to underweight from overweight. China Shenhua and China Coal, the nation’s largest coal producers, both fell the most in more than three months.

Ukraine Yields

The yield on Ukraine’s June 2014 dollar note fell 102 basis points, or 1.02 percentage points, to 19.90 percent, retreating for the first time in four days. The nation’s equities rose for the first time in three days.

The real posted the steepest drop in two weeks against the dollar. Brazil’s central bank President Alexandre Tombini said yesterday monetary policy has a delayed effect, adding to speculation that increases in borrowing costs will be limited.

The Ibovespa dropped 1.8 percent, with telecommunications company Oi SA leading the declines.

The Turkish lira depreciated 0.8 percent versus the dollar. The rupee weakened 0.4 percent, the most in two weeks and snapping a five-day stretch of gains. The Borsa Istanbul National 100 Index fell 0.2 percent. Data showed the current-account deficit widened less than expected in October, the Ankara-based central bank said today.

Fed Taper

The MSCI emerging-markets gauge is down 5 percent this year and trades at 11.7 times projected 12-month earnings, compared with a multiple of 15.6 for the MSCI World Index, which is up 20 percent in 2013, data compiled by Bloomberg show.

The Federal Open Market Committee will probably begin reducing an $85 billion-a-month bond buying program at its Dec. 17-18 meeting, according to 34 percent of economists surveyed Dec. 6 by Bloomberg, up from 17 percent in a Nov. 8 survey.

The Shanghai Composite retreated the most in a month. China may set its 2014 growth target lower at 7 percent, the Economic Information Daily reported Dec. 4. Policy makers should phase out proactive fiscal stimulus, the China Securities Journal said in a front page commentary today.

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong tumbled 2.7 percent, the biggest drop since Aug. 20, as China Life Insurance dropped 3.3 percent. China will have regional coal consumption control plans for some key areas, Xie Zhenhua, vice chairman of National Development and Reform Commission,said at a meeting yesterday. His comments were made in a statement posted on the NDRC’s website.

The Philippine peso strengthened 0.4 percent versus the dollar, snapping a three-day drop. Excessive volatility in the exchange rate will be curbed, Bangko Sentral ng Pilipinas Governor Amando Tetangco said in a mobile-phone message yesterday. The currency has weakened 1.5 percent this quarter.

To contact the reporters on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net; Maria Levitov in London at mlevitov@bloomberg.net

To contact the editor responsible for this story: Daliah Merzaban at dmerzaban@bloomberg.net

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