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Emerging Stocks Fall Most in 8 Weeks on Greece, China Concern

Friday, 10 February 2012 09:53 AM

Emerging-market stocks fell the most in eight weeks as European leaders delayed a rescue package for Greece and China’s trade data signaled growth in the world’s second-largest economy is weakening.

The MSCI Emerging Markets Index dropped 1.9 percent to 1,041.92 at 1:47 p.m. in London, retreating from a six-month high and erasing its weekly gain. The Hang Seng China Enterprises Index sank 2.3 percent. Benchmark gauges in Hungary, the Czech Republic and Ukraine lost more than 2 percent.

Greece must pass its latest austerity package into law before European leaders endorse 130 billion euros ($173 billion) of aid, Luxembourg Prime Minister Jean-Claude Juncker said yesterday. China’s exports fell and imports slid more than forecast in January as a weeklong holiday disrupted trade and commodity prices dropped. India’s industrial production increased less than estimated in December.

“The delay has raised the level of uncertainty in the market,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc. in Manila. “Some investors are worried this might not be done on time. Greece has to tighten its belt to improve its ability to service debt and reduce prospects of a default.”

The measure for developing markets has gained 14 percent in 2012, beating a 7.6 percent advance by the MSCI World Index of developed-nation shares. MSCI’s emerging-stocks gauge trades for 10.4 times estimated profit, up from an October low of about 9 times. The index has dropped 0.7 percent this week.

Emerging-market equity funds lured the most inflows since October 2010 in the week ended Feb. 8, taking in $5.8 billion, Citigroup Inc. analysts led by Markus Rosgen wrote today.

Allocation Cut

Emerging-market stocks are “overbought” as investors pour money into the funds, according to Morgan Stanley. The brokerage reduced its weighting on emerging and Asian stocks from the maximum “overweight” and boosted cash holdings to 2 percent from zero, Jonathan Garner and Pankaj Mataney, strategists at Morgan Stanley, wrote in a report dated today.

“Strong inflows are a near-term contrarian negative,” Garner and Mataney wrote. “The market is technically overbought.”

The 14-day relative strength index for the MSCI gauge closed at 82 yesterday, the highest since October 2010. A reading above 70 signals stocks may have rallied too quickly and may weaken, according to some technical analysts.

Egypt Downgrade

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose six basis points, or 0.06 percentage point, to 385, according to JPMorgan Chase & Co.’s EMBI Global Index.

The so-called yield spread for Egyptian debt increased 5 basis points to 558, according to JPMorgan. The country had its credit rating cut by one level to B, five levels below investment grade, at Standard & Poor’s today. The ratings company cited a decline in foreign-exchange reserves along with “ongoing political uncertainties” a year after the ouster of President Hosni Mubarak.

South Africa’s benchmark equity gauge fell 1.1 percent, while the rand weakened 2.4 percent against the dollar as the S&P GSCI Index of commodities fell for the first time in six days. Commodities account for about 60 percent of South Africa’s exports, according to government data.

Russia’s Micex Index declined 1.1 percent as oil retreated from the highest level in three weeks.

Output Slows

India’s Sensex Index lost 0.5 percent. Output at factories, utilities and mines rose 1.8 percent in December from a year earlier, after a 5.9 percent advance the previous month, the Central Statistical Office said in a statement in New Delhi today. The median of 23 estimates in a Bloomberg News survey was for a 2.6 percent gain.

China’s exports decreased 0.5 percent and imports fell 15.3 percent from a year earlier, the customs bureau said on its website today. The median estimate of 30 economists was for a 3.6 percent drop in imports for the month, which had four fewer working days than January 2011 because of the holiday. The trade surplus widened to a six-month high of $27.3 billion.

Euro-area finance ministers refused to approve a second aid package at an emergency meeting because the government fell short of austerity demands and because of a lack of assurances by Greek party leaders that they will stick to their commitments after elections due as soon as April. The Greek parliament is due to vote on the measures this weekend. Euro-region ministers are set to meet again on Feb. 15.

Cosco Pacific Ltd., which operates ports in Greece, fell 2.4 percent in Hong Kong trading.

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Friday, 10 February 2012 09:53 AM
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