Emerging-Market Stocks Drop to Four-Month Low on Greek Elections
Emerging-market stocks fell to a four-month low as Greek Pasok party leader Evangelos Venizelos said the country will hold elections, deepening concern Europe’s debt crisis will worsen and curbing demand for riskier assets.
The MSCI Emerging Markets Index (MXEF) lost 0.6 percent to 946.10, the lowest level since Jan. 9. Brazil’s Bovespa index fell, erasing this year’s gain, while Mexico’s IPC benchmark slipped 1.1 percent. MRV Engenharia & Participacoes SA (MRVE3), a home developer in Brazil, tumbled 15 percent after saying first-quarter net income declined 24 percent.
A second election in less than two months threatens to extend the political deadlock that has left Greece without a government since the last vote on May 6, and fuels concern that the country may exit the euro. Presidency official Costas Bitsios said a meeting will be held tomorrow to form a caretaker government to run the country.
“The more this political impasse lasts, the bigger are the chances of Greece leaving the euro zone,” Luciano Rostagno, chief strategist at WestLB AG’s Brazilian unit in Sao Paulo, said by phone. “Nobody knows how that would affect big countries that are also in trouble, such as Spain. That’s pushing risk aversion to high levels, making investors turn away from equities.”
Today’s retreat in the emerging-markets index trimmed its gain this year to 3.2 percent. The index trades at 10.1 times estimated earnings, compared with 11.8 times for the MSCI World Index (MXWO) of advanced nations.
Foreign direct investment in China fell for a sixth month in April, underscoring the risk of a deeper slowdown in the world’s second-largest economy.
“China’s growth is slowing down,” Ian Cruickshanks, head of strategic research at Johannesburg-based Nedbank Group Ltd., said by phone. “The European Union is their primary export market and if that’s close to recession it just says China has to slow down and so the whole of the commodity-producing emerging-market zone has to slow down too.”
Brazil’s benchmark gauge dropped 2.3 percent. For the year, the gauge is down 0.9 percent.
MRV plunged to 9.43 reais. Net income of 116 million reais in the first quarter missed the average estimate of adjusted profit of 173.8 million reais, according to a Bloomberg survey of five analysts.
Of the 56 companies on Brazil’s benchmark stock index that have reported first-quarter earnings, at least 30 trailed analysts’ estimates, according to data compiled by Bloomberg.
The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose four basis points, or 0.04 percentage point, to 385, according to JPMorgan Chase & Co.’s EMBI Global Index.