Emerging-Market Stocks Drop Amid China Policy, Europe Concerns
Emerging-market stocks fell on concern China will hold off easing monetary policy as property prices rebounded and after the Bundesbank criticized the European Central Bank’s bond repurchasing program.
The MSCI Emerging Markets Index (MXEF) retreated 0.2 percent to 969.21, with 350 stocks declining compared with 224 advancing. Brazil’s Bovespa stock index rose, led by real estate company Gafisa SA and as online retailer B2W Cia. Global do Varejo advanced for a third day. Soho China Ltd. (410), a property developer, lost 3.5 percent. The Shanghai Composite Index slumped to the lowest level since July 31.
The People’s Bank of China has no plan to cut lenders’ reserve-requirement ratios in the short term, the central bank’s Financial News said in a commentary. Chinese new-home prices climbed in 49 of 70 cities tracked by the government, the most since May of last year, the National Bureau of Statistics said Aug. 18. Germany’s Bundesbank stepped up its criticism of the European Central Bank’s plan to embark on potentially “unlimited” government bond purchases.
“Markets may be down because investors have priced in China pumping in some more liquidity into the system,” Win Thin, global head of emerging-market strategy at Brown Brothers Harriman & Co., said by phone from New York. “The property price report may make the PBOC a little more reluctant to add to easing measures.”
EM ETF Slips
The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF (EEM) tracking developing-nation shares, was little changed at 40.45. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, advanced 1.8 percent.
The Bovespa gained 0.3 percent with Gafisa increasing 5.7 percent to the highest since May 7. B2W advanced 3.7 percent.
A report last week showed retail sales in Brazil unexpectedly increased, while the central bank said on Aug. 17 that the country’s seasonally adjusted economic activity index (VXEEM), a proxy for gross domestic product, rose 0.75 percent in June from May, more than analysts had expected.
China’s policy makers cut interest rates in June and July after two reductions in banks’ reserve-requirement ratios this year as the economy expanded at the slowest pace since 2009.
Comments from the Bundesbank suggest President Jens Weidmann won’t support a measure the ECB is rushing to design to help reduce governments’ borrowing costs and win them time to implement fiscal reforms.
Thailand cut its economic growth forecast today, while Taiwan’s export orders dropped more than economists forecast in July.
China may expand a property tax trial and raise the “threshold” for home pre-sales if housing prices rebound too fast, the Shanghai Securities News reported today, citing unidentified people. Soho China closed at the lowest since June 5, while Shui On Land Ltd. (272) slid 2.3 percent.
Shares in Lonmin Plc, the world’s third-biggest producer of platinum, dropped 4 percent in Johannesburg after Deutsche Bank AG downgraded the company’s London-listed shares to sell from hold, extending last week’s 13 percent decline as clashes between striking mine workers and police at its Marikana mine left 34 dead on Aug. 16.
The MSCI Emerging Markets Index has gained 5.8 percent this year, compared with a 9.1 percent increase in the MSCI World Index of developed nations. The developing-nations measure trades at 10.8 times estimated earnings, compared with 13.1 for the MSCI World, data compiled by Bloomberg show.
The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong dropped 0.4 percent and the Shanghai Composite Index (SHCOMP) also slipped 0.4 percent to the lowest close since July 31. Taiwan’s Taiex Index lost 0.5 percent. Markets in Turkey, Hungary, India, Indonesia, Malaysia and the Philippines are closed for holidays.
“A rebound in property prices is bad for the economy as the government will refrain from conducting further policy easing,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “Investor sentiment is bad and the market will test new lows,” Li said, referring to Chinese equities.
Thailand’s gross domestic product is forecast to expand 5.5 percent to 6 percent, compared with a previous growth range of 5.5 percent to 6.5 percent, Arkhom Termpittayapaisith, secretary-general of the National Economic and Social Development Board, said in Bangkok. Taiwan’s export orders dropped 4.4 percent from a year earlier in July, compared with a 2.98 percent median estimate of economists in a Bloomberg survey.
Samsung, LG Innotek
Samsung Electronics Co. (005930) fell 0.9 percent in Seoul to a two- week low. The stock was the biggest drag on the MSCI Emerging Markets Index after the company and Apple Inc. (AAPL) reported they made no progress in narrowing a patents dispute.
LG Innotek Co. (011070) rallied 6.1 percent after Taurus Investment & Securities Co. said the South Korean company’s camera-module sales will increase.
The extra yield investors demand to own emerging-market bonds over U.S. Treasuries fell one basis point, or 0.01 percentage point, to 315, according to JPMorgan Chase & Co. (JPM)’s EMBI Global Index.
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