Emerging-Market ETF Declines Before Fed as Turkish Shares Tumble

Dec 17, 2013 5:41 pm ET

Dec. 17 (Bloomberg) -- The iShares MSCI Emerging Markets Index exchange-traded fund fell, snapping a two-day advance, ahead of the Federal Reserve’s policy statement tomorrow. Turkey’s stocks led world losses amid corruption arrests.

The developing-nation ETF slipped 0.9 percent to $40.86 in New York. The MSCI Emerging Markets Index rose less than 0.1 percent to 990.49 after a five-day slide. The Borsa Istanbul National 100 Index sank 5.2 percent after the sons of two cabinet ministers and the chief executive officer of Turkey’s largest state-owned bank were arrested as part of a corruption probe. The Czech koruna declined to a four-year low against the euro as the central bank kept its intervention policy.

Investors watched U.S. data for clues on when the Fed will start trimming its stimulus program. Confidence among American homebuilders beat forecasts while the cost of living was unchanged, showing inflation is making scant progress toward the central bank’s goal. About 34 percent of economists surveyed by Bloomberg on Dec. 6 predicted the Fed will start to reduce monthly bond purchases when it concludes the meeting. That compared with 17 percent in a survey from November.

“The market is very much a coin toss about what the Federal Reserve is going to decide to do,” Alan Gayle, who helps oversee $50 billion in assets as a senior strategist at RidgeWorth Capital Management, said by phone from Atlanta. “The decision of the Fed to remove monetary accommodation could draw money away from some of the financially weaker emerging-market countries. So we are mindful of that.”

Options Prices

The MSCI Emerging Markets Index trades at 10.4 times projected earnings, compared with the valuation of 14.2 for the MSCI World Index of developed shares. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, retreated 1.7 percent to 24.94.

Brazil’s Ibovespa slid from a one-week high, led by state- controlled oil producer Petroleo Brasileiro SA. The real climbed for a fourth straight day as the central bank’s plan for more intervention to bolster the currency in 2014 overshadowed concern the Fed will begin curtailing stimulus.

The Borsa Istanbul National 100 Index fell the most among 94 equity gauges tracked by Bloomberg. Suleyman Aslan, the CEO of state-owned lender Turkiye Halk Bankasi AS, and construction magnate Ali Agaoglu were among 22 arrested by police investigating bribery in government tenders, state-run Anatolia news agency said. Halkbank’s shares plunged.

$15 Billion

The Micex Index rose a third day in Moscow as OAO Magnit, Russia’s biggest food retailer, rallied, while PIK Group climbed on a stake-sale report. The nation will invest $15 billion from one of its sovereign wealth funds in Ukrainian government securities and cut the price of natural gas it charges its neighbor by about a third, President Vladimir Putin said.

The Czech koruna sank after the nation’s central bank kept its benchmark interest rate near zero for a ninth meeting as policy makers reaffirmed their commitment to koruna sales started last month to ward off the threat of deflation.

China’s stocks fell, capping a sixth day of losses for the benchmark index, dragged down by consumer companies reliant on economic growth. Qingdao Haier Co. and Gree Electric Appliances Inc. led declines for consumer-discretionary companies with losses of more than 3 percent. Property developers China Vanke Co. and Gemdale Corp. each retreated 1.9 percent.

Coal India

India’s S&P BSE Sensex declined to a three-week low ahead of the central bank’s policy meeting tomorrow. HDFC Bank Ltd., the nation’s biggest lender by value, slid the most since September. Coal India Ltd., a producer of the fuel, fell the most in a month. Bharti Airtel Ltd., the country’s largest cell- phone operator, posted its biggest gain since October.

The premium investors demand to own emerging-market debt over U.S. Treasuries rose four basis points, or 0.04 percentage point, to 323 basis points, according to JPMorgan Chase & Co.

--Editors: Rita Nazareth, Matthew Brown