Hong Kong - Emerging-market stocks tumbled to a three-month low, led by Russia, as Europe’s bailout of Cyprus sparked concern of renewed financial turmoil.
Currencies weakened and borrowing costs climbed.
VTB Group, Russia’s second-largest lender, headed for the biggest drop in 10 months.
Vale SA, the world’s biggest iron ore producer, dropped for a second day as commodities declined.
Samsung Electronics Co. and Hyundai Merchant Marine Co., which got at least 17 percent of their sales from Europe in 2011, both sank more than 2 percent in Seoul.
The ruble declined to the lowest level this year against the dollar and Hungary’s forint sank to a 14-month low.
The MSCI Emerging Markets Index fell 1.4 percent to 1,027.81 at 1:33 p.m. in London, its sixth day of losses.
European finance ministers reached an unprecedented agreement on March 16 forcing depositors in Cypriot banks to share in the cost of the latest euro-area bailout.
Including loans to companies registered in Cyprus, Russia’s “exposure” is about $60 billion, according to Moody’s Investors Service.
The 21 countries in the MSCI index send about 26 percent of their exports to the European Union on average, according to the World Trade Organization.
“Europe’s debt problem has resurfaced and is roiling investors’ sentiment for risky assets,” Budsares Yunniyom, a fund manager at Asset Plus Fund Management Co., which oversees about $1 billion of assets, said by phone in Bangkok today.
“The Cyprus crisis has demonstrated the unresolved problems among some European countries.”
Cypriot lawmakers will meet tomorrow to vote on a bank tax to raise 5.8 billion euros ($7.6 billion) as part of a bailout aimed at preventing a financial collapse and a possible exit from the euro area.
While Cyprus accounts for less than half a percent of the 17-nation euro economy, the concern is that the one-time tax on accounts could trigger bank runs across Europe and further destabilize the financial system.
The iShares MSCI Emerging Markets ETF slipped 1.1 percent to $42.31 in New York, set for the lowest close since December 4.
The extra yield investors demand to own developing-nation dollar debt over US Treasuries increased four basis points, or 0.04 percentage point, to 291, according to the JPMorgan Chase & Co. EMBI Global Index.
Russia’s Micex Index tumbled 2.6 percent, the most since July on a closing basis, with trading volume 90 percent more than the 30-day average. The ruble sank 0.7 percent against the dollar.
A double-tax avoidance treaty and low tax rates have made Cyprus the conduit of choice for Russians moving money into and out of their country.
“Such a decision, if it is adopted, will be unfair, unprofessional and dangerous,” Russian President Vladimir Putin told a government meeting today, according to a statement posted on the Kremlin website.
Russia may reconsider its role in the Cyprus bailout because it wasn’t consulted over the bank tax, state news service RIA Novosti reported, citing Finance Minister Anton Siluanov. Siluanov said on February 14 that Russia may restructure a 2.5 billion-euro loan to Cyprus in 2011 and possibly agree to a lower interest rate.
VTB fell 4.9 percent, the biggest drop since May 23.
OAO Sberbank, Russia’s largest lender, tumbled as much as 3.8 percent and traded 3.4 percent down in Moscow, the biggest decline in more than four months.
Russian banks had around $12 billion placed with Cypriot banks, predominantly through subsidiaries, at the end of 2012, Moody’s said.
“Russia is the most exposed” because of Russian deposits in Cyprus, Julian Rimmer, a trader with CF Global in London, said by e-mail today. Russians “may have to sell stocks to raise cash or perhaps move their assets elsewhere, which is difficult and expensive,” he said.
Hungary’s BUX Index fell 1.5 percent, declining for a sixth day, the longest losing streak since December 10. OTP Bank Nyrt., Hungary’s largest lender, fell 4 percent in Budapest.
The forint weakened 0.6 percent against the euro, after losing as much as 1.1 percent.
Poland’s WIG 20 Index fell 1.7 percent, led by KGHM Polska Miedz SA, the country’s sole copper producer, as the metal declined. The Czech PX Index lost 0.8 percent, led by Erste Group Bank AG’s 3.4 percent decline in Prague.
The Standard & Poor’s GSCI gauge of 24 raw materials dropped 1 percent as copper slid 2.2 percent.
Brazil’s Bovespa index lost 0.9 percent. Vale was the biggest drag on the gauge, falling 1.4 percent.
India’s S&P BSE Sensex index lost 0.7 percent. Coal India Ltd., the world’s largest producer of the fuel, dropped 5.5 percent to the lowest since December 2011.
EFG-Hermes Holding SAE, Egypt’s biggest investment bank, dropped 1.3 percent down, paring declines of as much as 8.7 percent. EFG-Hermes said in filing to Egypt’s bourse today that The public prosecutor’s investigation and decision to freeze assets of the company’s co-Chief Executive Officers, Yasser Al Mallawany and Hassan Heikal, are not related to company assets.
The MSCI emerging-market index is headed for its lowest close since December 7 and the biggest one-day drop in more than three weeks.
Morgan Stanley cut its target this year for the gauge to 1,220 from 1,230, reflecting a “moderate downgrade” in earnings forecasts, analysts led by Jonathan Garner wrote in a report dated today.
Bill Gross at Pacific Investment Management Co. said it moves “risk-on” trades to the back seat.
Information technology, energy and financial companies in the MSCI Emerging Markets Index fell at least 1.5 percent, posting the biggest declines among the 10 industry groups. The broader measure has slipped 2.6 percent this year and trades at 10.5 times estimated 12-month earnings, according to data compiled by Bloomberg. That compares with a multiple of 13.5 for the MSCI World Index of developed-nation shares, which has climbed 7.1 percent in 2013.
The Shanghai Composite Index dropped 1.7 percent, the lowest close since December 28. The Hang Seng China Enterprises Index slid 2.1 percent to the lowest level since December 4. The measure of 40 Chinese stocks traded in Hong Kong entered a so- called correction after falling more than 10 percent since February 1. JPMorgan reduced its recommendation on Chinese equities to underweight amid slower economic growth and inflation concerns, according to a report dated today.
The Philippine Stock Exchange Index fell 1.8 percent, the sharpest retreat since July 9. Taiwan’s Taiex Index slid 1.5 percent, the most since November 13.
The won touched its lowest level in almost six months and the ringgit sank to a seven-month low against the dollar.
The Thai baht dropped the most in more than two months.
Samsung Electronics declined 2.4 percent, the biggest drag in the developing-nations measure.
Hyundai Merchant lost 3.3 percent.
Industrial & Commercial Bank of China Ltd. fell 2.6 percent, the lowest level since December 4.
China Construction Bank Corp. declined 2.2 percent, the lowest close in more than three months after JPMorgan Chase & Co. downgraded Chinese shares.
JPMorgan is bearish on banks, telecom companies, and energy stocks and recommended bearish derivatives tied to the country’s four biggest banks.
China’s policy environment is challenging amid slow growth and concern about inflation, Adrian Mowat, the chief Asia and emerging-market strategist at JPMorgan, wrote in a report dated today.
Mowat had a neutral rating on China in a February 20 report.
SAIC Motor Corp. lost 2.6 percent in Shanghai, the lowest close since December 6. FAW Car Co. retreated 2 percent.
China’s quality watchdog told Volkswagen AG to recall vehicles fitted with the direct-shift gearbox system, after Europe’s biggest carmaker was targeted in China Central Television’s annual consumer-rights day program.
GCL-Poly Energy Holdings Ltd., the world’s biggest producer of polysilicon, tumbled 7.8 percent in Hong Kong, the most since November 12.
Returning to profitability will be challenging in 2013 because of an oversupply, according to Deutsche Bank AG’s report dated March 15.
China Resources Cement Holdings Ltd. declined 7.3 percent in Hong Kong, the most since October 2011.
Two concrete units were ordered to halt business for violating rules, while industry portal xbsn.com reported China was investigating cement companies for monopolistic practices.
BBMG Corp., a cement supplier, slid 9 percent in Hong Kong, the largest decline in the MSCI Emerging Markets Index.
Korea Aerospace Industries Ltd. climbed 3.9 percent in Seoul, the largest gain since November 5.
Expectations of new orders in the first half, coupled with the recent drop in its share price, “appear to be drawing interest,” Lee Sang Woo, an analyst at Hana Daetoo Securities, said by phone today.
Lee & Man Paper Manufacturing Ltd. gained 4.9 percent in Hong Kong, the biggest increase in the developing-nations gauge, after the company reported nine-month profit. - Bloomberg News