Blame Portugal

Emerging market hammered by Eurozone weakness

image credit: George M. Groutas

Emerging-market stocks headed for the first weekly drop in three amid renewed concern that financial risks in Europe are worsening. Indonesian equities slid from a 13-month high. Russia’s ruble weakened.

PT Bank Rakyat Indonesia sank 1.5 percent from a record as the Jakarta Composite Index slid the most in six weeks amid uncertainty over the nation’s disputed presidential election. OAO Mechel plunged for a fourth day after Russia indicated it may allow the mining company to fall into bankruptcy. Government bonds declined for a third day and the ruble lost 0.7 percent against the dollar. The won weakened for a sixth day versus the dollar, the longest slump since January.

The MSCI Emerging Markets Index lost 0.5 percent to 1,057.41 at 1:51 p.m. in London. The gauge reached a 16-month high on July 8, pushing valuations to the strongest since 2011. Missed debt payments by a company linked to Portugal’s second- largest lender spurred concerns Europe remains vulnerable to shocks in the wake of its sovereign-debt crisis.

“Markets have been complacent about the risks in Europe and yesterday was a bit of a wake up call,” Tony Hann, head of emerging-market equities at Blackfriars Asset Management Ltd., said by e-mail. “It’s a reminder that problems underlying the eurozone crisis have in many cases just been kicked down the road and not solved. A resurfacing of the issues would push up risk premia, which is bad for emerging markets.”

Financial stress

Banco Espirito Santo SA, Portugal’s No. 2 bank by market value, said it has exposure of 1.18 billion euros ($1.6 billion) to companies of Grupo Espirito Santo. It’s waiting for the release of that group’s restructuring plan and doesn’t expect any losses will “compromise the compliance with the regulatory capital requirements.” The lender provided the update after one of the group’s companies missed some short-term debt payments.

Eight out of 10 industry groups in the developing-nation gauge fell, led by industrial and technology companies. Samsung Electronics Co., the world’s largest smartphone maker, tumbled to the lowest level since March 25.

Bulgaria’s stock index lost 1.4 percent while the the Micex Index declined for a third day. Mechel sank 11 percent in Moscow to the lowest level since April 30 on a closing basis. Three weeks after the government said it was working on a plan to bail out Mechel, Industry and Trade Minister Denis Manturov said a bankruptcy filing is another possibility, though the ministry doesn’t support this option, the state-run RIA Novosti news agency reported.

Page 1 of 2 >>

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome