Emerging-Market Stocks Retreat as Sanctions Sink Russian Shares

Emerging-market stocks fell from a 16-month high as Russia slid the most since April and energy producers tumbled after the U.S. imposed new sanctions on the companies. The ruble depreciated the most since 2011.

OAO Sberbank and OAO Rosneft sank at least 2.7 percent in Moscow as the Micex Index retreated for the fourth day. The ruble weakened 2.1 percent versus the dollar, extending its decline after Ukraine said rebels shot down a Malaysian passenger jet. Stock markets in Hungary, the Czech Republic and South Africa each decreased by more than 0.4 percent. Taiwan Semiconductor Manufacturing Co. lost the most in a year.

The MSCI Emerging Markets Index declined 0.7 percent to 1,059.72, ending a three-day gain that sent valuations to the most expensive since April 2011. The U.S. and the European Union imposed the most aggressive sanctions to date on Russian businesses and said more may follow, acting after weeks of threats to squeeze the $2 trillion economy over the confrontation in Ukraine.

The sanctions “are negative on EM as oil prices get a boost, but EM equity investors don’t benefit from that rise as Russian stocks fall,” Martial Godet, the head of emerging-market equity and derivatives strategy at BNP Paribas SA in Paris, said by e-mail. “It also fuels the risks of further escalation and indicates the Ukraine story is far from over.”

Today’s decline trims the emerging-market measure’s advance this year to 5.7 percent. The gauge trades at 11 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index is up 4.5 percent in 2014 and is valued at a multiple of 15.

Russian Stocks

West Texas Intermediate crude rose the most in a month, increasing 2 percent to settle at $103.19 a barrel on the New York Mercantile Exchange.

The Micex tumbled 2.3 percent, capping the longest losing streak since April 25. The ruble dropped the most among 24 emerging-market currencies tracked by Bloomberg.

Sberbank fell 2.7 percent to the lowest since May 16. Rosneft, Russia’s largest oil company, plunged 4.3 percent. Natural gas producer OAO Novatek slumped 5.5 percent.

OAO Gazprombank, the country’s third-largest lender, Rosneft and Novatek are among companies that face penalties.

The latest attempt by America and the EU to squeeze Russia by limiting access to financing will probably push the economy into a recession, according to Riedel Research Group Inc.

Russian President Vladimir Putin denounced the action as a reflection of an “aggressive” U.S. foreign policy. At a news conference in Brazil, he warned they are liable to “boomerang” and hurt U.S. business interests.

Plane Crash

The ruble extended its decline after a Malaysian Air passenger jet crashed in the main battleground of Ukraine’s civil war, killing all 295 people aboard. The government in Kiev blamed pro-Russian rebels. The separatists denied the allegations.

The Ibovespa fell 0.1 percent. Phone company Oi SA tumbled 6.3 percent, the second-worst performance on the Brazilian benchmark gauge, after its credit grade was cut to junk by Fitch Ratings.

The Turkish lira weakened 1 percent after the central bank, led by Governor Erdem Basci, lowered the benchmark repurchase rate by 50 basis points to 8.25 percent, meeting the median estimate in a Bloomberg survey of 18 analysts.

All 10 industry groups in the MSCI Emerging Markets Index fell, led by energy shares. Taiwan Semiconductor slid 4.6 percent. Chairman Morris Chang said the company faces stiffer competition and will trail an unidentified rival in the production of advanced chips.

Indonesia Election

The premium investors demand to own emerging-market debt over U.S. Treasuries increased nine basis points to 273 basis points, according to JPMorgan Chase & Co. indexes.

The Jakarta Composite Index retreated 0.8 percent. Indonesian presidential candidate Joko Widodo is leading Prabowo Subianto with more than three-quarters of votes counted from last week’s election, according to unofficial websites tallying the results.

China’s Shanghai Composite Index fell the most in a week amid concern new share sales will divert funds from existing equities, while the Hang Seng China Enterprises Index lost 0.1 percent.

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