Emerging-Market Stocks Decline as Forint Sinks on Goldman’s Call

Feb 10, 2014 5:12 pm ET

Feb. 10 (Bloomberg) -- Emerging-market stocks fell for the first time in three days as OAO Sberbank led losses in lenders. The forint sank after Goldman Sachs Group Inc. said further rate cuts will make Hungary vulnerable amid a rout in riskier assets.

The MSCI Emerging Markets Index dropped 0.2 percent to 935.50. Russia’s Micex Index erased gains as Sberbank, the nation’s biggest lender, slid 1.2 percent, while Itau Unibanco Holding SA paced a slump in Sao Paulo. Brazil’s real declined the most among major currencies as a drop in commodities reduced demand for raw-material exporters, and the forint slid 1.1 percent. Shanghai Composite Index rallied to a one-month high after the government extended subsidies for automakers.

Financial and consumer companies drove losses in developing-nation equities as the broad measure extended this year’s drop to 6.7 percent. Federal Reserve Chairman Janet Yellen delivers her first semi-annual monetary-policy testimony tomorrow as markets weigh how mixed economic reports last week will affect the central bank’s plan for reducing stimulus. The MSCI Emerging Markets Index has retreated as much as 16 percent since May 22, when the Fed signaled its asset-buying program could be trimmed if the economy showed improvement.

“Given that we’ve seen some mixed data in the U.S., many analysts are going to pay close attention to tomorrow’s speech, to see the signs that she’s determined to backstop the economy in terms of doing everything possible to put it on the better ground,” Bruce McCain, who helps oversee more than $25 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said by phone today.

Emerging ETF

The iShares MSCI Emerging Markets Index exchange-traded fund declined 1.1 percent to $38.30. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, advanced 0.1 percent to 26.50.

Coutts & Co., the wealth management unit of Royal Bank of Scotland Group Plc, said it doesn’t see a crisis in emerging markets and the firm’s rich clients are taking advantage of this year’s declines to boost holdings.

“If you look at the balance of trade that our clients are doing, they’re buying,” Gary Dugan, the chief investment officer in Asia and the Middle East for Coutts, which counts Queen Elizabeth II among its clients, said in a interview yesterday in Dubai. “There’s been an appetite for Asia and for Russia after the sell-off. There’s no crisis, it’s just talk.”

Brazil, Russia

Brazil’s Ibovespa fell for the first time in three sessions as homebuilder Brookfield Incorporacoes SA led declines in companies that depend on domestic sales amid increased bets on higher borrowing costs. Itau dropped for a second day. The real sank 1.3 percent.

Russian stocks snapped a three-day rally as Sberbank posted the biggest decline since Jan. 29. The ruble slid as the central bank prepared to auction the equivalent of almost $6 billion to boost cash in the financial system.

Ukraine’s currency extended the biggest two-day rally in almost five years as capital controls imposed last week to curb flight from the hryvnia offer relief amid the biggest anti- government protests since communism. The lira weakened on concern Turkey could be blacklisted for not following guidelines on anti-terrorism financing at a meeting in Paris this week and after Standard & Poor’s downgraded its outlook.

Hungary’s Magyar Nemzeti Bank, which in January cut the benchmark rate to a record 2.85 percent in its 18th month of cuts, said there was room for further easing after government- imposed energy price cuts sent inflation to the lowest in more than 40 years.

Hungary ‘Exposed’

“The erosion in real rates has been the strongest, Hungary-specific factor differentiating Hungary from other countries in the region in this latest sell-off,” Magdalena Polan, a London-based economist at Goldman, wrote in an e-mailed report dated Feb. 7. The policy stance diverging from peers leaves Hungary “exposed,” Polan wrote.

The Shanghai Composite Index rose for a second day after the weeklong holiday, adding 2 percent. BYD Co., the automaker backed by Warren Buffett’s Berkshire Hathaway Inc., soared 10 percent in Shenzhen after the government said it will continue incentives on electric vehicles beyond 2015 to help lower emissions. FAW Car Co. surged the most since August after January vehicle sales jumped 50 percent.

Money Market

China’s central bank signaled that volatility in money- market interest rates will persist and borrowing costs will rise, underscoring the risk of defaults that could weigh on confidence and drag down growth.

Indian stocks fell, led by telecom shares and banks, as the benchmark index ended a four-day rally. Idea Cellular Ltd. plunged the most since October 2008, the worst performer on the S&P BSE 100 Index. Housing Development Finance Corp. declined to a four-month low. Tata Consultancy Services Ltd., the nation’s biggest software exporter, retreated for a third day.

The premium investors demand to own emerging-market debt over U.S. Treasuries fell one basis point, or 0.01 percentage point, to 341 basis points, according to JPMorgan Chase & Co.

--With assistance from Andras Gergely in Budapest and Dale Crofts in Dubai. Editors: Rita Nazareth, Daliah Merzaban