Emerging Market ETFs Plunge on Bad Days for Brazil, China Stocks

Joel Anderson |

Emerging market ETFs were battered on Wednesday as stocks in Brazil and China took hard hits. The iShares MSCI Emerging Markets ETF (EEM) was off nearly 2 percent, with the iShares FTSE China 25 Index Fund (FXI) declining over 3.5 percent and the iShares MSCI Brazil Index ($EWZ) dropping almost 3 percent.

China Stocks Decline Sharply, Biggest Lost in a Month

The major Chinese indices were in decline, with the Shanghai Shenzen CSI 300 Index and Hong Kong Hang Seng Index both losing over 1.5 percent and the Shanghai Stock Exchange Composite Index losing just under 1.5 percent.

Driving the decline were coal producers losing ground and, more importantly, speculation that the government would be cutting growth targets at an economic policy meeting later in December.

“There’s concern that the government will set a lower economic growth target,” said Jingxi Investment Management Co. investment officer Wang Zheng. “That’s triggered a sell-off of big-cap cyclical stocks, which have dominated the broader market recently.”

Coal producers appeared to take a hit after continually worsening air pollution led Xia Zhenhua, vice chairman of the National Development and Reform Commission, to state that China would have regional coal consumption control plans for some key areas.

Brazil Stocks Suffer as Budget Deal Believed to Mean Taper On Its Way

The “Taper Tango” danced another step on Wednesday as stock markets in Brazil retreated sharply over concern that the recent provisional budget deal in Washington could be a sign that a tapering of quantitative easing is coming sooner rather than later.

The Ibovespa Brasil Sao Paolo Exchange Index fell over 1.75 percent on speculation about potential changes in America’s economic policy.

Brazilian investors appeared gun shy about equities given the newfound bipartisan zeitgeist in Washington, especially after the positive job growth numbers from November and October.

"It seems that there is little interest on the part of investors to take significant risks," said Saga Capital’s Gustavo Mendonca.

 

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