FOREX WORLD TREND

Aug. 19 (Bloomberg) -- Emerging-market stocks, bonds and currencies fell on concern economic growth in China will falter as banks rein in lending.

The Shanghai Composite Index retreated as much as 5.1 percent, extending its drop from a 2009 high to more than 20 percent, the common definition of a bear market. India’s Bombay Stock Exchange Sensitive Index lost 1.5 percent, while Russia’s Micex Index slipped 1.3 percent.

The retreat in developing-nation bonds sent yields over U.S. Treasuries higher by 11 basis points to 3.87 percentage points, according to JPMorgan Chase & Co.’s EMBI+ Index. Hungary’s forint led declines in east Europe currencies against the euro and the dollar.

The MSCI Emerging Markets Index, a benchmark for equities in 22 countries, sank 1.1 percent to 816.36 as of 9:11 a.m. in New York. More than $1.3 trillion pledged by the U.S. and Chinese governments has pushed the Shanghai index’s price-to- earnings ratio to 30, almost double the ratio of 18 for the Standard & Poor’s 500 Index and 17 for the MSCI gauge.

“China can be a leading indicator,” Benjamin Pedley, managing director of LGT Investment Management Ltd., said in an interview with Bloomberg Television. “It may be a case of history repeating.”

The Shanghai gauge has foreshadowed moves in global equities the past two years. It peaked on Oct. 16, 2007, two weeks before the MSCI All-Country World Index. The Shanghai index fell 72 percent from its 2007 high and bottomed out on Nov. 4, 2008, four months before the MSCI index. The Chinese measure reached its 2009 high on Aug. 4, seven trading days before the global index.

Lending Concern

Stocks in China, the world’s third-largest economy, have slumped this month as a plunge in new bank loans in July and concern the government will seek to damp property speculation eroded investor confidence. Earnings for Chinese companies that reported since July 8 trailed analysts’ estimates by 12 percent on average, Bloomberg data show.

The Shanghai Composite closed 4.3 percent lower today as Maanshan Iron & Steel Co. tumbled 7.5 percent. The company posted a half-year loss for the second consecutive period as the global recession curbed demand from homebuilders and automakers.

Investors should buy emerging-market stocks amid declines this month because valuations aren’t expensive even after their gains this year, Credit Suisse analysts Sakthi Siva and Kin Nang Chik said in a report.

Societe Generale SA recommended this week buying emerging- market stocks and selling equities in developed nations short because developing nations will have faster economic growth and their shares are cheaper.
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