Emerging ETF Slips at Eletrobras Drives Rout in Utilities
The exchange-traded fund tracking emerging-market stocks dropped for a second day as declining utility and resource stocks offset advances in consumer and financial shares. South Africa’s rand sank to the weakest level since 2009.
The iShares MSCI Emerging Markets Index (MXEF) ETF lost 0.2 percent in New York. Voting shares of Centrais Eletricas Brasileiras SA (ELET6), South America’s largest power generator, tumbled to a 17-year low, leading a 0.4 percent drop in Brazil’s Bovespa Index. Angang Steel Co. surged the most since September after the steelmaker said it will swap assets with its Chinese parent to cut losses. AFK Sistema, the parent company of Russia’s largest mobile operator, climbed the most in a month in Moscow.
The MSCI Emerging Markets Index of developing-nation shares was little changed at 980.84 as 404 stocks rose while 357 declined. Fewer Americans filed applications for unemployment benefits last week, and an index of U.S. leading economic indicators rose at a slower pace in October, data today showed. President Barack Obama and lawmakers have started negotiations to avoid tax increases and government cutbacks known as the fiscal cliff scheduled to take effect next year.
“The market is falling back on the big focal points of this week,” Alec Young, a global equity strategist at S&P Capital IQ, said by phone in New York today. “To make upside progress we need to see news on a deal on the fiscal cliff, but the parties are saying all the right things, and that has put a floor under risk assets.”
The 21 nations in MSCI’s developing-nations gauge send about 26 percent of their exports to the European Union and 17 percent to the U.S. on average, data compiled by the World Trade Organization show. U.S. markets will be closed tomorrow for the Thanksgiving holiday.
The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, slipped 2 percent.
The rand weakened, trading above 9 per dollar for the first time in three years, as South Africa inflation unexpectedly quickened. The currency retreated 1.2 percent, the worst performance among major and emerging-market currencies monitored by Bloomberg.
The index of U.S. leading economic indicators gained 0.2 percent after a revised 0.5 percent advance in September that was lower than initially reported, the Conference Board said today. Jobless claims decreased by 41,000 to 410,000 in the week ended Nov. 17, the Labor Department reported.
European finance chiefs are scheduled to meet on Nov. 26 after talks failed to produce an agreement on a debt-reduction package for Greece.
“Everyone realizes that Greece will be fixed anyway,” Aurelija Augulyte, emerging-markets strategist at Nordea Bank AB in Copenhagen, said by e-mail. “There are no other drivers for risk off as U.S. heads for Thanksgiving. The markets are complacent with risk.”
The Bovespa slid, dragged by utility and energy shares as it reopened after yesterday’s holiday. Russia’s Micex climbed 0.7 percent and the ruble reached its strongest level versus the dollar since Oct. 22.
The Shanghai Composite Index added 1.1 percent, the most since Nov. 1, on bets the central bank will lower reserve-ratio requirements. Trading volumes for the Shanghai Composite and for South Korea’s Kospi index were 17 percent below the 30-day average, data compiled by Bloomberg show. About 31 percent fewer shares of Russia’s Micex index changed hands versus the 30-day average, the data show.
The Philippine Stock Exchange Index (PCOMP) rose for the fourth day to a record. Taiwan’s Taiex Index slid 0.8 percent to the lowest close since July 26.
The EGX 30 Index in Egypt gained 1.3 percent after the nation reached a preliminary pact for an International Monetary Fund loan of as much as $4.8 billion.
The yield on Egypt’s dollar bonds due in April 2020 dropped 13 basis points, or 0.13 percentage point, to 5.12 percent, the lowest since December 2010. Egypt’s bonds were raised to overweight at Bank of America Merrill Lynch after the IMF accord.
The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell five basis points, or 0.05 percentage point, to 293 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.
The emerging-markets measure has risen 7 percent this year, trailing an 8.6 percent gain by the MSCI World Index of developed countries. The gauge of developing-nation stocks trades at 11.3 times estimated earnings, compared with the MSCI World’s multiple of 13.2, data compiled by Bloomberg show.
Sinolink Securities Co. jumped 4 percent in Shanghai and led a rally for brokerages after the China Securities Journal said a new rule that lowers the benchmark for calculating risk capital reserves may free up 50 billion yuan ($8 billion) for the industry.
There is speculation “China’s central bank will cut the reserve-ratio requirement from Nov. 25,” Li Jun, a strategist at Central China Securities Co. in Shanghai, said in a phone interview today. “There’s no basis for the speculation so we don’t know if it’s true. It could be a technical rebound as well.”
Russian billionaire Vladimir Evtushenkov’s AFK Sistema jumped 2.7 percent in Moscow. Sistema’s management will recommend paying a higher dividend to attract investors, CEO Mikhail Shamolin said today, without giving details. The company may also decide on an additional share buyback in several weeks if the market price is low, he said.
Sistema spent $150 million purchasing stock through Oct. 15 and may cancel the shares it bought as part of that program, Shamolin said.
Voting shares of Eletrobras, as Centrais Eletricas is known, tumbled 16 percent. Shares have plunged 40 percent this month on concern that the government’s plan to lower electricity costs will hurt profits.
The MSCI EMerging Markets/Utilities Index (MXEF0UT) was the worst performer among 10 industry groups in the developing-nations gauge, falling 0.8 percent to the lowest level since June.
Magyar Telekom Nyrt., the Hungarian unit of Deutsche Telekom AG, dropped 2.2 percent, the most in three months, after the government increased a tax on cables, wires and pipes.
Angang Steel Co. (347), Hong Kong’s largest publicly-traded steelmaker, surged 7.4 percent, the most since Sept. 14. The company agreed to sell its 45 percent stake in Tianjin Tiantie, a cold-rolled steel venture, for 1.18 billion yuan ($189 million) to parent Anshan Iron & Steel Group, it said in an exchange filing. It also agreed to sell its 80 percent stake in Angang Putian, another cold-rolled steel plant, to the parent’s trading company.
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