Emerging Stocks Retreat From Valuations at September High

Emerging-market stocks declined after a seven-week rally sent valuations to the most expensive level since September. Technology shares slumped before earnings this week from companies including Samsung Electronics Co.

Samsung sank for a third day in Seoul. Largan Precision Co., which makes camera lenses, tumbled 7 percent in Taipei after Deutsche Bank AG said the company’s sales missed its forecast. Centrais Eletricas Brasileiras SA drove a drop in Brazilian power producers on concern low water levels at hydropower dams may compel the country to ration electricity. Istanbul’s ISE National 100 Index rallied to a record high.

The MSCI Emerging Markets Index fell 0.2 percent to 1,075.76 after seven weeks of gains, the longest rising stretch since October 2010. The measure traded at 12.63 times trailing earnings last week, the highest level since the week ended Sept. 28. About 49 companies on the developing-markets gauge are scheduled to post results in the next two weeks including Infosys Ltd. and HTC Corp., data compiled by Bloomberg show.

“The markets look a little overbought,” David Semple, who helps oversee about $37 billion as director of international equity at Van Eck Global, said by phone in New York. “The key is to see whether earnings start to follow the modestly better growth trajectory for many countries.”

Brazil Drops

The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF tracking developing-nation shares, declined 0.8 percent to $44.65 in New York, after gaining 3 percent last week. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, rose for the first time this year, adding 4 percent to 18.53.

Brazil’s Bovespa index dropped 0.9 percent in Sao Paulo, as analysts lowered forecasts for 2013 economic growth, while the Mexico’s IPC Index, which hit a record-high Dec. 18, climbed 0.1 percent. Poland’s WIG20 Index fell 0.9 percent, while Hungary’s BUX Index gained 0.6 percent, advancing for a 10th day, the longest rally since 2004.

Turkey’s benchmark rose 0.8 percent, to the highest level on record. Russian markets open for 2013 trading tomorrow.

The Czech koruna weakened 0.6 percent against the euro, its biggest retreat since Sept. 18, as a steeper-than-expected drop in industrial output fanned speculation the central bank will sell the currency to help exporters. India’s rupee lost 0.3 percent against the dollar, weakening for a third day.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries widened 3 basis points, or 0.03 percentage points, to 250 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.

Bull Market

China’s CSI 300 Index entered a bull market after rallying 20 percent from its 2012 low amid signs of an economic recovery in the world’s second-largest economy. Taiwan’s Taiex index retreated 0.7 percent. Pakistan’s KSE 100 Index dropped 0.9 percent. Vietnam’s VN Index jumped 1.9 percent, the most among Asia’s largest equity markets, on speculation the government will take steps to help companies cope with a slowing economy.

Equity trading volumes were higher than average in Korea and China, with about 38 percent more shares of Kospi companies changing hands versus the 30-day average, according to data compiled by Bloomberg. Volumes were 27 percent higher on the Shanghai Composite Index.

The MSCI Emerging Markets Index has climbed 1.9 percent this year, while the MSCI World Index is up 2.1 percent. The MSCI Emerging Markets Small Cap Index advanced for an 11th day, the longest winning streak since July 2007.

‘Nice Rally’

“Markets that had enjoyed a nice rally recently are giving back part of their gains,” said Heo Pil Seok, chief executive officer at Midas International Asset Management Ltd. in Seoul, which oversees $5.5 billion. “The earnings season in some countries kicks off soon, which will be keenly watched by investors at least until early February.”

Samsung Electronics, the world’s biggest maker of smartphones and televisions, dropped 0.3 percent, taking its three-day slide to 3.6 percent. The company will announce its preliminary estimate for fourth-quarter earnings tomorrow.

Largan Precision tumbled by the daily limit in Taipei to lead declines in the broader emerging markets gauge. Deutsche Bank said in a report the company’s fourth-quarter sales of NT$8.59 billion ($296 million) is lower than the brokerage’s estimate of NT$8.91 billion. Taiwan Semiconductor lost 1 percent.

HSBC’s Rating

Preferred shares of Eletrobras, as Brazil’s third-biggest electric utility by market value is known, fell 4.7 percent to lead declines on the Bovespa, and all but one stock on the benchmark’s Electric Energy index tumbled. President Dilma Rousseff called an emergency meeting to discuss the level of water reservoirs in Brazil because of risk of energy rationing, Folha de S.Paulo reported today, citing people in government it didn’t identify.

Cetip SA Mercados Organizados, Brazil’s biggest securities clearing house, fell 1.3 percent after HSBC Holdings Plc lowered its recommendation on the stock to neutral from overweight.

Brazil’s gross domestic product will expand 3.26 percent this year, according to the median forecast in a Jan. 4 central bank survey of about 100 economists published today. Analysts had forecast expansion of 3.3 percent a week earlier.

The MSCI Emerging Markets /Information Technology Index fell 0.7 percent, the most among 10 industry groups. A gauge of health-care stocks climbed 0.5 percent to a record close. Chinese health-care shares rose on speculation medicine demand will increase after two women died from the H1N1 flu strain in Beijing and the government set targets for growth in the biomedical industry.

Drugmakers Gain

Sihuan Pharmaceutical Holdings Group Ltd. rallied 6.2 percent in Hong Kong, while Sinopharm Group Co. added 4.4 percent. Beijing Tiantan Biological Products Corp. surged 10 percent in Shanghai.

Chinese property shares rose in Hong Kong after developers reported better December sales. Home sales volume in the capital city of Beijing surged 64 percent last year, the highest in three years, China Business News reported today, citing local government data. Agile Property Holdings Ltd. jumped 6 percent in Hong Kong, while Shimao Property Holdings Ltd. rose 3.3 percent.

GCL-Poly Energy Holdings Ltd, which makes the solar panel raw material polysilicon, jumped 7.6 percent to the highest price since May, leading gains in emerging markets gauge.

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