Emerging-Market Stocks Drop, Halting Longest Rally Since 2005; Yuan Falls

China may allow the yuan to strengthen to deflect criticism from its trading partners and curb inflation, while protecting a recovery in its exports. Photographer: Nelson Ching/Bloomberg

Emerging-market stocks fell for the first time in 11 days on renewed concerns Europe’s debt crisis will hurt the global economy.

The MSCI Emerging Markets Index lost 0.8 percent to 970.42 as of 3:10 p.m. in Singapore, snapping a 10-day, 10 percent rally that had lifted the gauge to a seven-week high. The yuan fell the most since December 2008 after yesterday strengthening the most in five years.

Developing-nation stocks snapped their longest rally since September 2005 after European Central Bank governing council member Christian Noyer said some banks are facing funding problems and Standard & Poor’s Ratings Services said Spanish lenders face difficult years as credit losses mount. Economists surveyed by Bloomberg predict Germany’s Ifo institute will say today its business climate index fell in June.

“I don’t think the euro crisis is even close to over given that there are fundamental solvency issues,” James McCaughan, chief executive officer of Principal Financial Investors, said in a Bloomberg Television interview from Kuala Lumpur.

Poly (Hong Kong) Investments Ltd. paced a drop among Chinese developers after the National Development and Reform Commission said property prices in larger cities are poised to steadily decline. The Kospi index fell 0.5 percent, the most in two weeks, after MSCI Inc. kept South Korea as an emerging market in an annual review. OAO Lukoil paced a 1.2 percent drop in Russia’s Micex index after crude oil prices declined.

Poly (Hong Kong) Investments, a developer of residential and commercial properties, fell 2.1 percent in Hong Kong trading. China Overseas Land & Investment Ltd., a developer controlled by the Chinese construction ministry, dropped 1.9 percent.

Yuan Weakens

The stocks surged yesterday after the People’s Bank of China said June 19 it would increase the yuan’s flexibility, spurring speculation a stronger yuan will tame inflation and reduce the need for interest-rate increases.

The yuan declined 0.17 percent to 6.8095 per dollar after climbing 0.4 percent yesterday.

The end of the yuan’s peg may not be “enough for a turnaround” in property stocks as the benefits from a stronger currency will be countered by the outlook of government policy and supply, Morgan Stanley analysts led by Derek Kwong said in a report today.

Fitch Ratings cut its long-term credit rating on BNP Paribas, France’s largest bank, citing a “deterioration” of the company’s asset quality. The report came as Standard & Poor’s lowered its economic growth forecast for Spain to an average of 0.7 percent a year through 2016 from 1 percent, saying Spanish banks face mounting credit losses and “substantial strain” on revenue generation.

Samsung Electronics

Samsung Electronics Co., an electronics maker that gets more than a fifth of its sales from Europe, retreated 1.7 percent in Seoul.

The stock also fell after MSCI said it will skip upgrading South Korea to developed-market status for a second year, citing the “rigidity” of its investor identification system and the lack of an active offshore market for the country’s currency, as well as anti-competitive practices relating to stock market data.

“There may be disappointment in the short term,” said Chu Moon Sung, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which manages $26 billion.

Lukoil, Russia’s second-largest oil producer, lost 0.6 percent while OAO Tatneft declined 1.2 percent. Crude oil prices fell as much as 1.1 percent to $76.97 as optimism faded that China’s yuan policies would strengthen the global economic recovery and after Goldman Sachs Group Inc. reduced its crude price forecasts today.

To contact the reporter on this story: Shiyin Chen in Singapore at [email protected]




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