Emerging Stocks Drop on China Inflation as Infosys Surges

Emerging-market stocks fell, pushing the benchmark index to its first weekly drop since November, on concern Chinese inflation will restrict monetary easing while strengthening currencies hamper exporters.

Brazilian iron-ore producer Vale SA, whose largest export market is China, declined as the Bovespa index posted its biggest weekly decline since November. Hyundai Motor Co., South Korea’s biggest automaker, slipped 1.7 percent as the won appreciated to its strongest versus the dollar since August 2011. Consumer and raw materials stocks led declines. Infosys Ltd., India’s No. 2 software exporter, jumped the most in more than three years after the company raised its sales forecast.

The MSCI Emerging Markets Index slipped 0.4 percent to 1,073.04 at the end of trading in New York, for a 0.5 percent weekly decline. The won gained against the yen as the Bank of Korea held benchmark borrowing costs for a third month and Japan reported a larger-than-expected current account deficit in November. China’s inflation rate rose more than was estimated by economists to a seven-month high.

“Currency gains would crimp exporters’ earnings and come at a time when the purchasing powers of the Western countries remain low,” Jitendra Panda, head of sales broking at Future Capital Holdings Ltd. in Mumbai, said by phone. “Tackling inflation continues to be a huge problem for many countries and that has jeopardized policy makers’ plans to ease.”

The emerging-market gauge posted its first weekly drop since the five days ended Nov. 16. The Shanghai Composite Index sank 1.5 percent this week, its first decline in seven. The gauge slumped 1.8 percent today, the most among Asian markets.

ETF Falls

The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. slipped 1.1 percent in New York as American depositary receipts of Semiconductor Manufacturing International Corp. sank 5.3 percent, the most since October.

The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF tracking developing-nation shares, fell 0.8 percent, extending a 1.2 percent drop in the week, the most since November. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, added 4.1 percent to 18.16.

The Bovespa retreated for the first time in three days and fell 1.6 percent in the week. Vale lost 1.9 percent to the lowest level since Dec. 24 as the S&P GSCI Spot Index of commodities dropped 0.5 percent.

Cia. Brasileira de Distribuicao Grupo Pao de Acucar, Brazil’s biggest retailer, slid 3.2 percent, the most in two months, after reporting sales at supermarkets open at least a year grew at a slower pace in the fourth quarter. Trading volume was 35 times the daily average over three months, data compiled by Bloomberg show. Mexico’s IPC Index gained 0.7 percent this week for a sixth advance.

Improved Outlook

The Hang Seng China Enterprises Index of mainland Chinese companies listed in Hong Kong fell 0.7 percent, its first drop in three days. South Korea’s Kospi index slid 0.5 percent. The BSE India Sensitive Index was little changed.

The euro-area economy will gradually return to health in 2013, European Central Bank President Mario Draghi said yesterday, and Japan announced a 10.3 trillion-yen ($116 billion) monetary stimulus package today. The U.S. trade deficit unexpectedly widened in November, data today showed, as retailers bought imported goods in preparation for the holidays. The gap swelled 15.8 percent to $48.7 billion, according to Commerce Department figures.

Turkish Airlines

“In the last few months we got increasing confirmation of better global growth prospects,” Maarten-Jan Bakkum, an emerging-market strategist at ING Investment Management in The Hague, said by e-mail.

Russia’s Micex Index rose 0.2 percent on the fourth day of 2013 trading. The Czech Republic’s PX Index gained 0.5 percent, while Turkey’s ISE National 100 gauge added 0.2 percent. The BUX Index in Hungary added 0.7 percent, while Poland’s equity benchmark slipped 0.6 percent.

Turkish Airlines increased 1.5 percent to a record in Istanbul, after Dunya newspaper reported Deutsche Lufthansa AG is interested in cooperating on flights to the Middle East and Asia, citing an unidentified company executive.

‘Massive Inflows’

Emerging-market equity funds recorded their biggest-ever weekly inflows as the U.S. budget deal and China’s economic rebound fueled investor demand for riskier assets. The funds attracted a net $7.4 billion in the week ended Jan. 9 and assets under management reached an all-time high of $781 billion, Jonathan Garner, the chief Asia and emerging-market strategist at Morgan Stanley in Hong Kong, wrote in an e-mailed note today, citing data compiled by research firm EPFR Global.

“We’ve had some massive inflows into emerging markets,” Michael Wang, an emerging-markets strategist at Amiya Capital LLP in London, said by e-mail. “People may not be willing to make many big bets.”

The emerging-markets gauge has risen 1.7 percent this year, trailing a 3.3 percent gain by the MSCI World Index of developed-country stocks. The measure trades at 10.9 times estimated earnings, compared with the MSCI World’s multiple of 13.3, data compiled by Bloomberg show.

The rand weakened 0.9 percent versus the dollar, depreciating for a fifth day, after Fitch Ratings downgraded South Africa to the second-lowest investment grade because of slowing economic growth, a widening budget deficit and rising unemployment. Standard & Poor’s and Moody’s Investors Service cut South Africa’s ratings last year.

China Inflation

China’s consumer price index rose 2.5 percent in December from a year earlier, the National Bureau of Statistics said today in Beijing. That compares with the 2.3 percent median estimate in a Bloomberg News survey of 42 economists and a 2 percent advance in November. Producer prices dropped 1.9 percent, compared with an estimate for a 1.8 percent decline.

December inflation points to tighter monetary policy, a stronger currency to curb imported inflation, less liquidity and higher rates in the second half of the year, said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB.

Hyundai Motor fell the most since Jan. 3 in Seoul. A stronger currency cuts the value of exporters’ overseas sales when converted back to local currency. A gauge of consumer discretionary stocks sank 0.8 percent, the most among 10 industry groups in the developing-nations gauge.

Infosys surged 17 percent in Mumbai, the biggest advance since June 1993, and the largest gainer in the emerging-markets gauge. The company raised its sales forecast about 3 percent to 407.5 billion rupees ($7.5 billion) as it reported better-than-expected profit for the third quarter. Larger rival Tata Consultancy Services Ltd. jumped 3.8 percent, the most since April 24.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose four basis points, or 0.04 percentage point, to 264 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.

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