Emerging Stocks Post Biggest Monthly Drop in One Year

Emerging stocks capped the biggest monthly slump in a year as Brazilian equities tumbled after policy makers raised the benchmark interest-rate more than forecast. Indian shares plunged on bets inflation may rise.

Brazil’s Ibovespa fell to a six-week low, while the real slid to its weakest level in four years, spurring central bank intervention. Housing Development Finance Corp. drove India’s S&P BSE Sensex down, while the rupee completed its worst month in a year. OAO Lukoil, Russia’s second-largest oil producer, slipped 2.3 percent as crude slumped.

The MSCI Emerging Markets Index lost 0.7 percent to 1,008.88, extending its monthly drop to 2.9 percent. Brazil’s central bank raised the benchmark interest-rate by a half-percentage point to 8 percent, surprising 38 of 57 economists surveyed by Bloomberg. India’s economy expanded less than 5 percent for a second straight quarter. The S&P GSCI gauge of commodities slumped a third day.

“Global growth continues to decelerate,” said Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co., which oversees about $130 billion. He spoke in a telephone interview today. “That has put the brakes in emerging markets.”

Commodity and utility shares have led the losses among the 10 industries in the MSCI Emerging Markets Index, slumping at least 4.7 percent. The broad gauge extended this year’s decline to 4.4 percent, compared with an 10 percent jump in the MSCI World Index.

Emerging ETF

The iShares MSCI Emerging Markets Index exchange-traded fund retreated 1.8 percent to $41.20. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, surged 10 percent to 23.68.

Brazil’s benchmark index slumped 2.1 percent as MRV Engenharia & Participacoes SA led homebuilders down. The real fell 1.3 percent to 2.1411, the lowest since May 2009, even as the central bank auctioned currency swap contracts to try to stem the currency’s decline.

The Micex Index retreated 0.8 percent in Moscow, the lowest level since April 23. The gauge extended its monthly slump to 2.6 percent. Lukoil, which has the biggest weighting on the measure, dropped to a one-month low.

Russia’s 2027 ruble bonds had their worst month in at least a year as investors shunned riskier assets amid concern the U.S. Federal Reserve may pare back stimulus and on expectations May inflation will quicken.

South Africa’s rand fell to a four-year low amid speculation the central bank may sell dollars to soothe volatility and as government officials tried to reassure investors.

Indian Shares

The S&P BSE Sensex sank the most since March 22, 2012 on speculation a weakening currency may stoke inflation and prompt overseas investors to pare holdings of local shares. HDFC had the biggest decline since October.

China’s stocks fell, paring the benchmark index’s biggest monthly gain this year, before tomorrow’s manufacturing report. Property and technology companies, among the best-performing shares in May, led losses. The Shanghai Composite Index slid 0.7 percent. It jumped 5.6 percent in May, the biggest monthly gain since December 2012.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries slid three basis points, or 0.03 percentage point, to 293 basis points, according to JPMorgan Chase & Co.’s EMBI Global Diversified Index.

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