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Emerging Stocks Tumble as China Leads BRICs Down 10% From Peak

April 5, 2013

April 5 (Bloomberg) -- Emerging-market stocks sank to a four-month low, sending the MSCI BRIC Index down 10 percent from this year’s peak as bird flu concerns sparked a slump in Chinese airlines and capital outflows from South Korea accelerated.

China Southern Airlines Co. fell 8.5 percent in Hong Kong on concern the widening bird flu infections may curb travel. Hyundai Motor Co., which competes with Japan’s Toyota Motor Corp. selling cars abroad, slid to a 17-month low in Seoul as the yen traded near its weakest level since August 2009. Foreign funds unloaded a net $1.2 billion of Kospi index shares this week, stock exchange data show, as the risk of conflict with North Korea spurred outflows. OAO MegaFon fell by a record in Moscow after JP Morgan Chase & Co. cut the stock’s rating.

The MSCI Emerging Markets Index slipped 1 percent to 1,006.88 at 5 p.m. in Hong Kong, its fifth day of declines. The gauge has dropped 2.7 percent this week. The MSCI BRIC Index retreated 10 percent from its Feb. 1 high, heading for the threshold that some investors identify as a correction. Six people have died from a new strain of bird flu in China. North Korea said yesterday it passed a law authorizing "counter- actions" against U.S. aggression including a nuclear strike. Data today may show U.S. payrolls growth slowed after weekly jobless claims rose.

"Global funds are skeptical in investing in the emerging markets amid the political and health concerns," Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance Co. in Mumbai, said in a phone interview today. "Markets will start factoring in the fundamentals once the current headwinds disappear."

Kospi Drops

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong tumbled 3.1 percent, the steepest loss since July 23. South Korea’s Kospi index fell 1.6 percent, capping the biggest weekly loss since May. Russia’s Micex Index dropped 0.2 percent, its third day of declines.

Trading volumes for India’s S&P BSE Sensex were 32 percent lower than the 30-day average for this time of the day, data compiled by Bloomberg show. Volumes were 27 percent lower in the Jakarta Composite Index.

Emerging funds drew inflows of $0.54 billion in the week ended April 3 compared with total outflows of $3.6 billion in the last three weeks, Morgan Stanley said in a report today.

All the 10 industry groups in the MSCI Emerging Markets Index dropped, led by a gauge of consumer discretionary companies. The broader index has lost 4.6 percent this year, compared with a 6.6 percent gain in the MSCI World Index of developed-country stocks. The developing-nations measure trades at 10.2 times estimated 12-month earnings, compared with the MSCI World’s multiple of 13.3, data compiled by Bloomberg show.

Thai Slump

 

Thailand’s SET Index tumbled 2.6 percent, the lowest level since March 22. Heavy selling by foreign investors yesterday surprised the market, Sukit Udomsirikul, head of research at Maybank Kim Eng in Bangkok, said by e-mail.

The won dropped 0.7 percent to a seventh-month low as the risk of conflict with North Korea spurred capital outflows.

"Geopolitical risk from the North Korean threat is likely to weigh on the South Korean won for an extended period of time," said Suh Dae Il, an analyst at KDB Daewoo Securities Co. in Seoul.

China Southern, the country’s biggest domestic carrier, tumbled the most since Jan. 16, 2012. Air China Ltd. sank 9.8 percent and China Eastern Airlines Corp. lost 8.3 percent.

Previous outbreaks of severe acute respiratory syndrome, or SARS, and bird flu had emptied planes and caused Asian airlines to post losses.

"People are worried the new bird flu would develop into a disaster like SARS," Davin Wu, a transportation analyst at Credit Suisse Group AG, said by phone. "At least leisure travelers will be cutting back their trips to China."

Poultry Orders

GFPT Public Co., a Thai poultry producer, rose 3.4 percent in Bangkok to the highest level since January 15. Overseas buyers may shift poultry orders to Thailand from China because of the bird flu outbreak, said Naree Apisawaittkan, an analyst at Phillip Securities.

Malaysian glove maker Supermax Corp. gained 3.6 percent in Kuala Lumpur on speculation the outbreak will boost demand. Rival Top Glove Corp. added 3.1 percent. Shanghai Fosun Pharmaceutical Group Co. advanced 3.9 percent in Hong Kong and Shanghai Pharmaceuticals Holding Co. rose 1.3 percent.

Hyundai Motor and Kia Motors Corp., the biggest South Korean automakers, retreated at least 4.4 percent, extending yesterday’s slide that was triggered by their plan to recall vehicles in the U.S. for electronic defects.

The shares also fell today amid concern a weaker yen will hurt the competitiveness of South Korea’s exporters against their Japanese rivals. Toyota Motor rose 3.4 percent in Tokyo, its highest level since July 2008.

 

--With assistance from Michael Patterson in Hong Kong. Editors: Chan Tien Hin, Ravil Shirodkar

 

To contact the reporter on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net

 

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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