Emerging-market stocks tumbled to the lowest level in three months, led by Russian equities, as Europe’s bailout of Cyprus sparked concern over more financial turmoil.
Bloomberg News reported on Monday, that currencies weakened and borrowing costs climbed.
VTB Group, Russia’s second-largest lender, capped the biggest drop in 10 months. Vale SA, the world’s biggest iron ore producer, fell a second day in Sao Paulo as commodity prices declined.
Samsung Electronics Company and Hyundai Merchant Marine Company, which got at least 17 per cent of their sales from Europe in 2011, sank by more than two per cent in Seoul. The ruble weakened to the lowest level this year against the dollar
The MSCI Emerging Markets Index fell by 1.1 per cent to 1,030.37 by 12:13 p.m. in New York, its sixth day of losses. European finance ministers reached an unprecedented agreement March 16 forcing depositors in Cypriot banks to share in the cost of the latest euro-area bailout.
Including loans to companies registered in Cyprus, Russia’s “exposure” is about $60bn, according to Moody’s Investors Service.
“It’s not so much Cyprus itself, but it reminds people that there’s still risk in Europe,” the New York- based head of asset allocation for ING Investment Management, Mr. Paul Zemsky, which oversees $170bn, said by phone. “It really shakes confidence in the banking system.”
Cyprus’ banks will remain closed on Tuesday and Wednesday, according to a government official, as lawmakers meet tomorrow to vote on a bank tax to raise $7.6bn as part of a bailout aimed at preventing a financial collapse and a possible exit from the euro area.
While Cyprus accounts for less than half a per cent of the 17-nation euro economy, the concern is that the one-time tax on accounts could trigger bank runs across Europe and further destabilize the financial system.
The MSCI emerging-market index is headed for its lowest close since December 10. Morgan Stanley cut its target this year for the gauge to 1,220 from 1,230, reflecting a “moderate downgrade” in earnings forecasts, analysts led by Jonathan Garner wrote in a report on Monday.
All 10 groups in the developing-nations index dropped on Monday, as technology, energy and financial shares had the biggest losses.
The broader measure has slipped by 2.4 per cent this year and trades at 10.8 times estimated 12-month earnings, according to data compiled by Bloomberg.