Emerging Stocks Fall on China Growth Concern as Aeroflot Slides

Aug 05, 2014 4:32 pm ET

Aug. 5 (Bloomberg) -- Emerging-market stocks fell as Taiwan Semiconductor Manufacturing Co. led technology shares lower and China’s non-manufacturing industry declined. Russian equities dropped as OAO Aeroflot tumbled to the lowest level since March.

Taiwan Semiconductor sank to a two-month low in Taipei. Aeroflot, Russia’s biggest air carrier, lost 5.9 percent after Vedomosti reported the government is considering European flight restrictions. The ruble fell as the nation pulled its third local bond sale in a row. Currencies in Malaysia, South Korea and Indonesia gained at least 0.4 percent. The rupee stayed stronger after India’s central bank held interest rates.

The MSCI Emerging Markets Index decreased 0.7 percent to 1,062.02. A gauge of technology shares retreated 0.7 percent after posting its largest gain in 11 months yesterday. China’s service industries stagnated in July, suggesting the government’s stimulus measures are failing to gain traction outside of manufacturing. The Shanghai Composite Index slid from its highest level since December.

Declines in China have been precipitated by services PMI data highlighting “that the economy is not necessarily that robust,” Tony Hann, London-based head of emerging-market equities at Blackfriars Asset Management Ltd., said by e-mail. Taiwan’s Taiex Index, which dropped the most since February today, succumbed to profit taking following a “decent run, particularly in tech,” he said.

Russian Stocks

Nine of the emerging-market gauge’s 10 industry groups fell today, led by material and consumer staples companies. A Bloomberg gauge tracking 20 developing-nation currencies weakened 0.4 percent. The premium investors demand to own emerging-market bonds over U.S. Treasuries increased three basis points to 284, according to JPMorgan Chase & Co. indexes.

The Micex Index dropped 1.5 percent in Moscow as volume in Aeroflot jumped to more than four times the three-month daily average. Russia may limit or ban flights over Siberia by European air carriers bound for Asia, Vedomosti reported, citing people familiar with the situation. Aeroflot, which collects royalties from foreign airlines that cross Siberia, last week grounded its low-cost Dobrolet unit after European Union sanctions were imposed.

President Vladimir, after the close of trading, ordered the government to prepare a response to U.S. and EU sanctions as Poland warned that a renewed buildup of Russian troops on Ukraine’s border raises the specter of a possible invasion.

The ruble fell 0.6 percent against the dollar, pushing its drop in the past month to 4.4 percent. The Finance Ministry cited “unfavorable market conditions” for its decision to cancel tomorrow’s local-currency offering.

India Rates

Brazil’s Ibovespa fell 0.7 percent. Tim Participacoes SA was the worst performer on the gauge, dropping 8.5 percent on speculation the mobile-phone carrier’s alternatives for expansion are shrinking after Telefonica SA offered to buy rival GVT.

Dubai’s DFM General Index declined 0.9. Turkey’s Borsa Istanbul 100 Index fell for a fourth day. Stock markets in Egypt and Qatar climbed at least 1 percent.

The S&P BSE Sensex Index advanced 0.7 percent to the highest level since July 30. The rupee gained 0.1 percent versus the dollar. The Reserve Bank of India kept the benchmark repurchase rate at 8 percent as retail inflation slowed.

South Korea’s won rose 0.5 percent after foreign-exchange reserves climbed to a record. The ringgit appreciated before tomorrow’s data that may show the trade surplus widened in June.

China Services

The MSCI Emerging Markets Index has risen 5.9 percent this year and trades at 11.1 times projected 12-month earnings, data compiled by Bloomberg show. That compares with a multiple of 14.7 for the MSCI World Index, which is up 2.3 percent in 2014.

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong dropped 0.7 percent. Developer Greentown China Holdings Ltd. plunged 12 percent after saying it expects first-half profit will drop more than 65 percent from a year earlier. The Shanghai Composite Index lost 0.2 percent after climbing 1.7 percent yesterday.

China’s services Purchasing Managers’ Index came in at 50 in July, the lowest since the series began in November 2005 and down from 53.1 in June, according to HSBC Holdings Plc and Markit Economics. A reading above 50 indicates expansion.

The Shanghai Composite Index will probably end its world- beating rally within days and fall about 10 percent, said Tom DeMark, the developer of market-timing indicators who predicted the gauge’s peak last year. “Selling into strength now is recommended,” DeMark wrote in an e-mailed response to Bloomberg, adding that the losses may occur over six months.

Taiwan Semiconductor slid 3.2 percent. Smartphone-maker HTC Corp. dropped to a five-month low after its July sales fell 33 percent from a year ago. The Taiex Index dropped 2 percent.

“Technology shares have outperformed the broader market with a return that is way above the market, making profit-taking inevitable in the sector,” said Allan Yu, first vice president at Metropolitan Bank & Trust Co., which manages $7.5 billion.

--With assistance from Vladimir Kuznetsov in Moscow.