Emerging Stocks Tumble on Outlook as Crude Sinks Russia
Emerging-market equities declined the most in two weeks, led by industrial and consumer stocks. Falling oil spurred declines in Russia’s benchmark index.
Orascom Construction Industries (OCIC) plunged in Cairo after reporting a 31 percent drop in third-quarter net income, while Hankook Tire Worldwide Co. (000240) slid to a four-week low in Seoul. Citic Securities Co. (6030), China’s biggest-listed brokerage, sank for the first time in six days as equity trading shrank in China and the Shanghai Composite Index declined to its lowest level since January 2009. Russia’s Micex Index (VTBMICX) dropped the most in two weeks as crude tumbled in New York.
The MSCI Emerging Markets Index (MXEF) fell 0.5 percent to 991.27 in New York, its biggest one-day decline since Nov. 15. The global economic recovery will be “hesitant and uneven” over the next two years as a recession in Europe crimps demand, the Organization for Economic Cooperation and Development said in a report issued yesterday. The gauge pared losses as U.S. President Barack Obama floated a resolution to the country’s budget impasse by Christmas.
“The OECD report focused on the deteriorating growth backdrop, and that certainly is going to weigh on emerging markets,” Nick Chamie, global head of emerging-markets and currency strategy at Royal Bank of Canada, said in a phone interview from Toronto. “This lingering concern over the fiscal cliff as well as the overhang of the downgraded growth prospects focused in on a number of risks that lie ahead.”
‘Eye of Storm’
The developing-nations gauge dropped as much as 0.9 percent earlier today as Erskine Bowles, co-chairman of Obama’s 2010 fiscal commission, said the president and Congress probably won’t reach a deal to resolve the so-called fiscal cliff by the end of 2012. Speaker of the House John Boehner said later that he is “optimistic” budget talks will continue.
“We are now in the eye of the storm of debate regarding the fiscal cliff,” Mark Burgess, the chief investment officer at Threadneedle Investments, wrote in an e-mail. “If the markets continue to be unsettled by the situation in the U.S., we will use the market weakness to increase our equity exposure further.”
The $607 billion in spending cuts and tax increases set to take effect next year should a deal not be agreed may spur a recession and a higher U.S. jobless rate, the Congressional Budget Office has said.
The Micex Index (INDEXCF) fell 1 percent in Moscow, declining for a third day as oil, Russia’s chief export earner, dropped 0.8 percent to $86.49 a barrel. OAO Rostelecom, Russia’s state-run telephone operator, dropped 5.2 percent after OAO MegaFon, the country’s second-largest mobile operator by users, raised $1.7 billion in an initial public offering.
Egypt’s EGX 30 Index (EGX30) slid to a four-month low after President Mohamed Mursi rejected demands to reverse decrees awarding him sweeping new powers. Orascom Construction, the nation’s biggest publicly traded business, declined 6.9 percent after saying profit retreated in the last quarter because of a “seasonal slowdown.”
Brazil’s Bovespa rose for the first time in three days, adding 0.5 percent as B2W Cia. Global do Varejo, the nation’s biggest online retailer, surged to the highest level since September 2011. Bank of America Corp. rated B2W a buy yesterday on prospects an improved distribution infrastructure will cut costs.
The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF tracking developing-nation shares, gained 0.6 percent to $41.51 in New York. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index (VXEEM), a measure of options prices on the fund and expectations of price swings, rose 1.9 percent.
The Hang Seng China Enterprises Index of Hong Kong-listed Chinese stocks slumped 1.2 percent today, retreating for a third day. The Shanghai Composite Index dropped 0.9 percent, with trading volumes 18 percent below the gauge’s 30-day average. The Jakarta Composite Index fell 0.8 percent.
The broader emerging markets measure has advanced 8.2 percent this year, trailing a 10 percent gain in the MSCI World Index of developed countries. The developing-nations gauge trades for 11.4 times estimated profit, compared with the MSCI World’s 13.4 multiple, according to data compiled by Bloomberg.
China’s yuan retreated from a 19-year high as the central bank lowered its reference rate for the currency, meaning it had to act to weaken the currency to remain within its permitted trading range. China’s money-market rate climbed the most in four weeks on speculation cash supply will tighten as banks hoard funds to meet month-end capital requirements.
China isn’t a currency manipulator under U.S. law, though the yuan “remains significantly undervalued” and needs to rise further, the Treasury Department said in a statement accompanying its semi-annual currency report to Congress yesterday.
The ruble depreciated 0.3 percent against the dollar, while South Africa’s rand strengthened 0.3 percent on its fifth day of gains.
Hankook Tire, South Korea’s largest tire manufacturer, slumped 3.3 percent. The company got 26 percent of its second- quarter revenue from North America, data compiled by Bloomberg show. Mando Corp. (060980) tumbled 7.3 percent to the lowest price in two years in Seoul. Mando was the worst performer on the developing nations gauge on trading volumes almost three times the three- month average, data collated by Bloomberg show.
China Longyuan Power Group Corp. (916), the nation’s biggest developer of wind farms, surged 7.5 percent in Hong Kong after the company started operating a 150-megawatt venture off the eastern province of Jiangsu.
The extra yield investors demand to own emerging-market debt over U.S. Treasuries fell two basis points, or 0.02 percentage point to 289 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.