Emerging Stocks Plunge as US Budget Concerns Sink Commodities

Friday, 21 Dec 2012 12:40 PM

 

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Emerging-market stocks fell the most in six weeks as mounting concern over the U.S. budget standoff sent commodity producers in Russia and Brazil lower.

OAO Transneft, the state-run oil pipeline operator, declined in Moscow, while Petroleo Brasileiro SA slumped the most in a month in Sao Paulo. Jindal Steel & Power Ltd. was the worst performer on India’s Sensex Index, which posted the biggest retreat since Oct. 30. Samsung Electronics Co., the world’s biggest maker of smartphones and televisions, dropped the most in more than three months after the European Union said it’s preparing an antitrust complaint.

The MSCI Emerging Markets Index lost 1.1 percent to 1,041.54 at 11:18 a.m. in New York, set for the biggest drop since Nov. 8. The gauge is little changed for the week. U.S. House Republican leaders canceled a vote that would permit higher tax rates amid stalled budget talks to avert more than $600 billion in tax increases and spending cuts set to start on Jan. 1. The 21 nations in the developing-nations gauge send about 17 percent of their exports to the U.S. on average, World Trade Organization data show.

“Every market is watching the U.S.,” Benoit Anne, the London-based head of emerging-market strategy at Societe Generale SA, said by phone. “Commodities are global risk indicators, and they might be under pressure if we continue to be nervous about the fiscal cliff.”

The MSCI Emerging Markets Index has risen 14 percent this year, beating the 13 percent increase in the MSCI World Index of developed countries. The emerging-markets gauge trades at 12 times estimated profit, compared with the MSCI World’s 13.8, according to data compiled by Bloomberg.

After Christmas

The S&P GSCI Spot Index fell for a second day, declining 0.6 percent as crude oil sank as much as 2.4 percent in New York, the biggest slump in a month.

U.S. House Speaker John Boehner scrapped a plan to allow higher tax rates on annual income above $1 million, yielding to anti-tax resistance within his own party. House members and senators won’t vote on the end-of-year budget issues until after Christmas, giving them less than a week to reach agreement to avert the so-called fiscal cliff.

The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF tracking developing-nation shares, fell 1.5 percent to $42.13. The ETF has gained 14 percent this year. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, jumped 6.7 percent.

Bovespa Retreats

Brazil’s Bovespa Index retreated 1.3 percent, poised for its biggest decline since Nov. 26 and trimming the weekly gain to 1.6 percent. Petrobras dropped 2.8 percent, the most since Nov. 16 . Vale SA, the world’s largest iron-ore producer, slid 2.1 percent after it said it will book a $4.2 billion fourth- quarter charge after lowering the valuation of a nickel mine and its stake in aluminum producer Norsk Hydro ASA.

The Argentina Merval Index fell 2.1 percent, the most in four weeks, while the Mexican IPC Index fell for a third day.

India’s Sensex dropped 1.1 percent, the most since Oct. 30 as Jindal, the nation’s second-biggest steelmaker by value, declined 3.5 percent. Sterlite Industries Ltd., India’s biggest copper producer, fell 3.2 percent, snapping a five-day rally.

Russia’s Micex Index retreated 0.7 percent, paring its weekly advance to 0.8 percent. Transneft shed 1.8 percent, while OAO Bashneft, a regional oil producer, lost 0.9 percent. Benchmark indexes in Poland, Turkey and the Czech Republic also declined.

Netia SA, a Polish phone company, sank 14 percent, its biggest fall in more than nine years, as it said it may post a loss this year because of an asset writedown in the fourth quarter.

Key Patents

South Africa’s rand weakened 1 percent against the dollar, the most in three weeks. Indonesia’s rupiah weakened 0.8 percent amid concern about a widening current-account deficit. India’s rupee lost 0.4 percent.

Taiwan’s Taiex Index and South Korea’s Kospi index dropped 1 percent, with trading volumes in Seoul 34 percent above the 30-day average, data compiled by Bloomberg show. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong, slipped 1.1 percent, the most since Dec. 3.

Samsung led a gauge of technology companies down by 2.1 percent, the most among 10 industry groups in MSCI’s emerging- markets index. Samsung sank 4.1 percent, the biggest loss since Aug. 27, after the EU said it is probing whether the company violated agreements to license key patents to other mobile-phone makers on fair terms. The EU will issue a notice listing antitrust concerns as soon as the end of this year, the bloc’s competition commissioner said yesterday.

LG Display Co. slid 3.5 percent, while memory-chip maker SK Hynix Inc. slipped 3.4 percent to a two-week low.

‘Increasingly Vulnerable’

Innolux Corp. and AU Optronics Corp. lost at least 6 percent in Taipei after the Economic Daily News reported a drop in prices of liquid-crystal display panels.

The Philippine Stock Exchange Index rose for a fourth day and government bonds advanced on speculation the nation will win an investment-grade rating next year after Standard & Poor’s raised its credit outlook to positive.

S&P cut Cyprus’s long-term debt rating for the third time in five months, citing a rising risk of default as the government’s short-term financing is “increasingly vulnerable.”

Indo Tambangraya Megah Tbk PT, the top gainer in the emerging-market gauge, rallied 6.3 percent, snapping four days of declines.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose three basis points, or 0.03 percentage point, to 267, according to JPMorgan Chase & Co.’s EMBI Global Index.

© Copyright 2014 Bloomberg News. All rights reserved.

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