Emerging Stocks Trim Best Quarter in 2013 as Vale Tumbles

Emerging-market stocks fell, paring the biggest quarterly gain this year, as Vale SA led commodity shares lower before a potential U.S. government shutdown. Indonesia's rupiah had the largest three-month drop since 2008.

The MSCI Emerging Markets Index decreased 1.2 percent to 987.46, trimming its rally for the quarter to 5 percent. Brazil's Ibovespa (IBOV) posted the longest losing streak since March as mining company Vale slumped, while OAO RusHydro paced losses in Russia. Benchmark equity gauges from Philippines to Indonesia and Thailand retreated at least 2.4 percent. The rupiah led losses in emerging markets this quarter.

Commodity shares in the measure for developing nations declined as the S&P GSCI gauge of 24 raw materials slid to a seven-week low after a Chinese manufacturing index rose less than analysts forecast. Both parties in U.S. Congress dug in deeper hours before a midnight deadline to keep the government open, lobbing dead-end proposals and insults across the Capitol as the first partial shutdown in 17 years looked inevitable.

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"What happens in the U.S. affects global markets," Alan Gayle, senior strategist at RidgeWorth Capital Management, said by phone from Atlanta. His firm oversees about $48 billion. "If there's some concern about economic momentum entering the fourth quarter, that's probably going to weigh on emerging markets."

Today's drop pared a monthly gain in the MSCI Emerging Markets Index to 6.2 percent. The gauge traded at 10.4 times projected earnings, compared with the valuation of 13.9 for the MSCI World Index, according to data compiled by Bloomberg.

Emerging ETF

The iShares MSCI Emerging Markets Index exchange-traded fund slid 1.2 percent to $40.76. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, surged 9.8 percent to 25.73.

Brazil's Ibovespa dropped for a fifth consecutive day as lower commodity prices pushed raw-material producers down. Vale fell 1.9 percent, while oil company OGX Petroleo e Gas Participacoes SA sank to a record after people with direct knowledge of the matter said it plans to miss a $44.5 million payment on dollar bonds scheduled for tomorrow.

Russian stocks trimmed their strongest quarterly rally in almost three years as crude oil, the nation's chief export earner, declined. OAO RusHydro, the nation's biggest renewable energy producer, sank 2.6 percent. OAO Mechel, Russia's largest coking coal producer, retreated 2.3 percent.

China's Stocks

The Shanghai Composite Index (SHCOMP) capped the best quarter in three years as consumer discretionary and technology stocks advanced in the last trading day before a weeklong holiday shuts the nation's markets. Shanghai Oriental Pearl (Group) Co. jumped by the 10 percent daily limit after the central government inaugurated the Shanghai free trade zone yesterday.

Chinese shares gained even after data showed that the Purchasing Managers' Index from HSBC Holdings Plc and Markit Economics rose to 50.2 in September from 50.1 in August. The final number was less than last week's 51.2 preliminary reading and the 51.2 median estimate in a Bloomberg News survey. A similar gauge from the government is due tomorrow.

India's (SENSEX) benchmark stock index fell to a three-week low. ICICI Bank Ltd. (ICICIBC), the country's second-biggest lender, slid 4.3 percent. The rupee capped its best month in a year after the central bank took steps to boost dollar supply.

The Philippine Stock Exchange Index fell 3 percent, capping a 4.2 percent quarterly loss. Thailand's SET Index (SET) sank 2.4 percent to the lowest level since Sept. 6. Indonesia's rupiah weakened 14 percent since the end of June as of 4:24 p.m. in Jakarta, the biggest loss among 24 developing-nation exchange rates tracked by Bloomberg. The rupiah fell 5.7 percent in September and 0.4 percent today.

The premium investors demand to own emerging-market debt over U.S. Treasuries advanced four basis points, or 0.04 percentage point, to 337 basis points, according to JPMorgan Chase & Co.