Emerging Stocks Decline as Brazil Retreat Outweighs ECB Rate Cut

Emerging-market stocks declined as Brazilian shares tumbled amid concern growth will falter in Latin America’s biggest economy, outweighing new stimulus measures from the European Central Bank.

The Ibovespa fell the most in three weeks in Sao Paulo, leading declines among the world’s 20 biggest equity benchmarks. Stock gauges in Turkey, Hungary and Poland gained at least 1 percent. The Micex Index advanced for a third day in Moscow as Ukrainian President Petro Poroshenko said he’ll call a cease fire if peace talks with rebels start tomorrow.

The MSCI Emerging Markets Index fell 0.2 percent to 1,099.16 after closing yesterday at the highest level since August 2011. Petroleo Brasileiro SA, Brazil’s state-run oil producer, contributed the most to the benchmark’s decline as President Dilma Rousseff gained support in an election poll. The Ibovespa has rallied 12 percent in the past two months amid speculation a new leader would help boost growth.

“Brazilian optimism seems to me ahead of itself and is liable to disappointment after the election,” Paul Christopher, chief international strategist at Wells Fargo Advisors, said by e-mail.

Economists have cut their 2015 growth forecasts for Brazil to a record low. Gross domestic product will expand 1.6 percent in 2015, down from a 2.8 percent estimate in January, according to analysts surveyed by Bloomberg.

‘Major Boost’

The developing-market gauge earlier advanced as much as 0.3 percent after the European Central Bank unexpectedly cut all three policy rates. India’s rupee strengthened 1.8 percent as 23 of 24 emerging-market currencies tracked by Bloomberg rose against the euro.

“The euro system will purchase a broad portfolio of simple and transparent securities,” ECB President Mario Draghi told reporters today. The measures together with longer-term loans for banks will have a sizable impact on the balance sheet, he said.

The move “is a major boost to risk sentiment toward global EM, in particular for central Europe,” Benoit Anne, the London-based head of emerging-market strategy at Societe Generale SA, said by e-mail. “The ECB is going to trigger another leg of strong EM rally. Buy global emerging markets with a vengeance on the ECB bazooka.”

The Micex advanced 0.6 percent. The gauge rallied 3.5 percent yesterday after Russian President Vladimir Putin proposed a peace plan to end more than five months of fighting in Ukraine.

Ruble, Hryvnia

The ruble rallied 1.2 percent against the euro while it declined 0.4 percent versus the dollar.

Ukraine’s hryvnia slid 2.8 percent against the dollar, declining for the first time in seven days. The hryvnia has lost 35 percent this year, the biggest retreat after Ghana’s cedi among more than 170 currencies tracked by Bloomberg worldwide.

The Ibovespa declined 1.7 percent. Petroleo Brasileiro SA retreated 4.8 percent, the most in three weeks.

The MSCI Emerging Markets Index has risen 9.6 percent this year and trades at 11.5 times 12-month estimated earnings, the highest level since January 2011, data compiled by Bloomberg show. The MSCI World Index has gained 5.2 percent and trades at a multiple of 15.1.

Samsung Electronics Inc. climbed 1.8 percent from a two-year low in Seoul. The world’s largest smartphone maker is seeking a hit product following a muted reception to the Galaxy S5 that triggered a slide in earnings and provided opportunities for low-cost producers to surpass its sales in China and India.

Chinese Stocks

Apple Inc. suppliers dropped, with Hon Hai Precision Industry Co. losing 1.1 percent and Delta Electronics Inc. sliding 3.5 percent.

The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong gained 0.7 percent to the highest level since Dec. 9. China Vanke Co., the nation’s biggest developer, climbed 2 percent in Hong Kong. The Shanghai Composite Index advanced 0.8 percent to a 15-month high.

Chinese regulators recently informed some brokers that they will allow listed developers to issue mid-term notes in the interbank market, Bank of America economist Lu Ting wrote in a note today, citing a Reuters report.

“China may be trying to put some cushion in the property market,” Jeffrosenberg Tan, a fund manager at PT Sinarmas Asset Management, said by phone in Jakarta.

Trading in the shares of China’s two biggest train manufacturers CSR Corp. and China CNR Corp. was halted after Caixin magazine reported that the Chinese government wants to merge the two companies. Zhuzhou CSR Times Electric Co., a CSR unit, jumped 7.7 percent before being suspended.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE