Emerging-market stocks fell as South Korea commenced a live-firing drill that sparked North Korean warnings of retaliation and concern lingered that Europe?s debt crisis will spread.
The MSCI Emerging Markets Index lost 0.2 percent to 1,113.05 as of 3:24 p.m. in Hong Kong. South Korea?s Kospi Index sank as much as 1.5 percent before ending 0.3 percent lower after Agence France-Presse reported the North will allow nuclear inspectors to return. China?s Shanghai Composite Index lost 1.4 percent as drugmakers tumbled amid speculation the government will lower medicine prices.
?Fears of escalating tension in South Korea and news flow on Europe?s debt problems are driving investors to the sidelines,? said Jonathan Ravelas, a strategist at Manila-based Banco de Oro Unibank Inc.
South Korean artillery positions on Yeonpyeong Island, which was shelled by the North last month, began the exercise at 2.30 p.m. local time, said a defense ministry official who declined to be named, citing government policy. An emergency meeting of the United Nations Security Council ended last night without agreement as China blocked moves to condemn the North and Russia urged that the drills be scrapped.
Posco, a steelmaker and the second-biggest company by market capitalization on the Kospi, fell 1 percent while LG Display Co., the world?s No. 2 flat-screen panel maker, sank 2.6 percent, the lowest since Nov. 19.
Defense Stocks
The Kospi pared declines after Agence France-Presse reported a CNN broadcast as saying that North Korea will allow UN nuclear inspectors to return to the country. New Mexico Governor Bill Richardson, who is in Pyongyang with CNN correspondent Wolf Blitzer, also secured an agreement from North Korea to create a military hotline with the U.S., AFP said.
The country?s defense-related shares climbed. Victek Co., which makes electronic warfare equipment, rose 1.9 percent. Speco Co., a military installation parts developer, gained 8 percent.
In Shanghai, Kangmei Pharmaceutical Co. dropped 4.5 percent. The National Development and Reform Commission may lower prices by an average 40 percent for 658 approved medications, the Economic Observer reported today, citing officials from unidentified pharmaceuticals companies. The NDRC didn?t respond to a fax seeking comment.
Li Ning Co. plunged the most on record in Hong Kong after the Chinese sportswear maker said orders declined. The stock dropped 17 percent.
European Concerns
PT Bank Mandiri, Indonesia?s largest bank by assets, fell 1.6 percent, pacing a decline by the nation?s lenders. Banks retreated amid concern the debt crisis in Europe will prompt investors to sell assets in high-yielding markets, according to Andrew Siahaan, an analyst at PT Reliance Securities.
European stocks declined on Dec. 17 as an agreement among the region?s leaders to create a crisis-management mechanism failed to ease concern that some euro-area nations can?t repay their debts. Ireland?s credit rating was cut five levels by Moody?s Investors Service last.
Hai-O Enterprise Bhd., a Malaysian seller of traditional health-care products, dropped 3.8 percent after posting a 70 percent profit decline in the three months ended Oct. 31.
To contact the reporters on this story: Ian C. Sayson in Manila at isayson@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net.
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