Biggest Emerging Stock Slump in Seven Months Wipes Out 2013 Gain

Emerging-market stocks fell the most in seven months, erasing gains in 2013, after the Federal Reserve sparked concern that the U.S. may curtail stimulus and declining commodity prices dragged producers lower.

United Co. Rusal, the world’s biggest aluminum producer, slumped to a 3 1/2-month low in Moscow. Belle International Holdings Ltd., a women’s footwear maker, plunged the most on record in Hong Kong after saying profit will be at the lower end of analysts’ estimates. Oil producer OGX Petroleo & Gas Participacoes SA surged 12 percent in Sao Paulo, the biggest gain on the emerging markets gauge. Benchmark stock indexes in China and Turkey both slumped more than 2 percent.

The MSCI Emerging Markets Index slid 1.4 percent to 1,053.14 in New York, the steepest drop since July 23. Some Fed policy makers said they should be ready to vary the pace of the central bank’s $85 billion in monthly bond purchases, according to minutes of a meeting released yesterday. The Standard & Poor’s GSCI Index of 24 raw materials fell to a one-month low.

“Easing the U.S. stimulus will siphon away some of the liquidity and that’s affecting investors’ sentiment because it’s this liquidity that fueled the rally in emerging stocks,” Allan Yu, who helps manage about $11 billion at Metropolitan Bank & Trust Co., said by phone from Manila.

The iShares MSCI Emerging Markets Index exchange-traded fund fell 1.4 percent to $43.09, tumbling to the lowest level since Dec. 10. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, surged 11 percent to 18.20, the steepest one-day advance since Jan. 28.

‘Significant Correction’

The MSCI BRIC Index of shares in Brazil, Russia, India and China sank 1.9 percent to the lowest level since Dec. 27.

The 21 countries in the developing-nations gauge send about 17 percent of their exports to the U.S. and 26 percent to the European Union on average, data compiled by the World Trade Organization show. A report today showed euro-area services and factory output contracted.

Emerging-market stocks may enter a more “significant correction” after underperforming developed-nation shares this year, according to JPMorgan & Chase Co.

“Fundamentals and technicals are weakening,” JPMorgan strategists led by Adrian Mowat wrote in a report yesterday.

Materials, telecommunications services and energy stocks are leading declines in 2013 among 10 industry groups in the MSCI emerging gauge, all retreating at least 3.2 percent. Telekomunikacja Polska SA, Poland’s largest phone company and the worst performer in the emerging-markets measure this year, has tumbled 45 percent in 2013 after the company cut its dividend proposal as fourth-quarter revenue slumped.

Mexico Declines

Brazil’s Bovespa index fell for a seventh day, losing less than 0.1 percent to cap the longest stretch of daily declines since May. Airline Gol Linhas Aereas Inteligentes SA retreated 3.4 percent. Brazilian fuel distributor Ultrapar Participacoes SA rose 4.5 percent after earnings beat analysts’ predictions.

Mexico’s IPC Index dropped 0.4 percent, as cement producer Cemex SAB retreated 2 percent.

The Bloomberg China-US Equity Index of Chinese stocks traded in the U.S. fell 1.3 percent to an 11-week low. Trina Solar Ltd. tumbled 9.3 percent, while SouFun Holdings Ltd., China’s biggest real estate website, slipped 4.6 percent to a 2013 low.

Oil slid 1.7 percent in New York while nickel, copper and zinc led industrial metals lower in London.

Poland Rating

Russia’s Micex Index fell 1.2 percent to its lowest close this year. Rusal slid 3.4 percent in Moscow and OAO Mechel, the nation’s biggest maker of steelmaking coal, lost 3.8 percent. OAO Gazprom, the world’s biggest natural gas producer, lost 1.1 percent.

AFK Sistema sank 5.2 percent in London for the lowest close since November, after the Russian company said its Indian phone-operator unit is closing services in 10 of its regions of operation. Sistema also plans to participate in some of India’s spectrum auctions starting March 11, the company said in a statement today.

The Czech Republic’s PX Index fell 1.1 percent, while Hungary’s BUX Index lost 1.8 percent to close at the lowest level since Jan. 8. Poland’s WIG20 Index retreated 0.3 percent while the zloty was little changed against the euro after earlier gaining as much as 0.3 percent. Fitch Ratings raised its outlook for Poland’s debt rating to positive from stable. The nation is rated A-, Fitch’s fourth-lowest investment grade.

Telekomunikacja Polska fell 3.3 percent to the lowest level on record. Banco Espirito Santo SA downgraded the stock to sell from neutral today.

Yield Gap

All 10 industry groups in the MSCI Emerging Markets Index fell, with gauges for consumer, material, energy and financial stocks sliding at least 1.6 percent. The broader emerging markets gauge has lost 0.2 percent this year, trailing the MSCI World Index’s 3.9 percent advance. The emerging-markets index trades at 10.5 times estimated earnings, compared with the MSCI World’s 13.7 times, data compiled by Bloomberg show.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose five basis points, or 0.05 percentage point, to 283 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.

India’s S&P BSE Sensex Index fell 1.6 percent, the biggest drop since July 23. Shriram Transport Finance Co. tumbled 7.5 percent in Mumbai. TPG Capital is selling a $300 million stake in Shriram, according to terms obtained by Bloomberg News.

‘Marginally Higher’

The Hang Seng China Enterprises Index declined 2.2 percent today, erasing this year’s gains. The Shanghai Composite Index fell 3 percent, the most since Nov. 30, 2011. Vietnam’s VN Index sank 3.7 percent, the sharpest loss in Asia.

Belle slumped 17 percent. The company expects that its 2012 net income will be “marginally higher” than the previous year’s and “will fall within the lower end” of analysts’ estimates, according to a filing. Daphne International Holding Ltd., a rival of Belle, lost 6.4 percent.

Evergrande Real Estate Group Ltd., China’s biggest developer by sales volume, slid 1.6 percent to the lowest level in more than two months. Soho China Ltd., the biggest developer in Beijing’s central business district, dropped 1.8 percent.

China’s government told local authorities to curb real estate speculation, according to a statement yesterday. Chinese cities that have had “excessively fast” price gains should promptly impose home-purchase restrictions if they’ve not done so already, according to the statement released yesterday after a State Council meeting headed by Premier Wen Jiabao.

‘Tricky Period’

“We are in a tricky period of policy risk for China,” Michael Wang, an emerging-markets strategist at Amiya Capital LLP in London, said by e-mail. “There may be some more tightening related to the property sector and a slowdown in credit.”

China Minsheng Banking Corp. fell 5.3 percent in Hong Kong on speculation more restrictions on the property industry will hurt demand for bank loans and construction materials.

The People’s Bank of China drained 910 billion yuan ($146 billion) from the financial system this week, according to Dariusz Kowalczyk, a Credit Agricole CIB strategist in Hong Kong. That was the biggest withdrawal since Bloomberg started compiling the data in 2008.

Jollibee Foods Corp., the largest Philippine fast-food company, surged 5.9 percent to a record in Manila, the second biggest gain in the MSCI Emerging Markets Index. The stock rallied a fifth day since it reported on Feb. 14 that profit rose 15 percent in 2012.

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