Emerging-market stocks capped the steepest weekly tumble in 13 months, bonds retreated and South Korea’s won paced declines in currencies amid speculation the Federal Reserve will pare economic stimulus.
The MSCI Emerging Markets Index fell 0.9 percent to 900.54, extending its weekly drop to 5.6 percent. The measure has tumbled 17 percent from its Jan. 3 high. Poland’s WIG20 index sank to the lowest since Aug. 30, while Brazil’s Ibovespa (IBOV) dropped to four-year low. The won posted the biggest weekly slump in 21 months. The premium investors demand to own emerging-market rather than U.S. Treasuries rose this week by the most in a year, according to JPMorgan Chase & Co.
More than $6.9 billion left funds investing in developing-nation debt in the four weeks to June 19, the most since 2011, according to Morgan Stanley, citing EPFR Global data. The exodus is reversing the $3.9 trillion of cash that flowed into emerging markets in the past four years. Fed Chairman Ben S. Bernanke said June 19 that the central bank may taper its bond purchases later this year and halt them around mid-2014 as long as the world’s largest economy performs in line with its projections.
“The Fed potentially withdrawing liquidity doesn’t help,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management which oversees $180 billion, said by phone today. “It’s not clear how much of the run up in markets overall was caused by the Fed providing liquidity, so that’s going to make people skittish.”
Nine of 10 groups in the MSCI Emerging Markets Index fell today, led by a gauge of utility and consumer companies. The measure of developing-nation stocks is trading at 9.4 times estimated earnings, an 11-month low, according to data compiled by Bloomberg. Shares in the MSCI World Index of developed markets are valued at 12.9 times projected profits.
The iShares MSCI Emerging Markets Index exchange-traded fund rose 1.4 percent to $37.41. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, slid 5.3 percent to 33.61 after surging 34 percent yesterday.
Brazil’s Ibovespa dropped 2.4 percent as a report showing consumer prices increased more than forecast added to concern that inflation will sap the economic recovery. Cia. Paranaense de Energia, a Brazilian utility known as Copel, tumbled the most on record after giving in to the Parana state governor’s demands that it suspend an electricity rate increase.
The Mexican IPC Index surged 1.4 percent, the best performance among major emerging market gauges. Mining company Industrias Penoles SAB jumped the most since January 2009.
The Micex Index climbed for the first time in three days in Moscow and OAO Novatek jumped after the natural gas producer signed a liquefied natural gas deal with China National Petroleum Corp.
Poland’s WIG20 index tumbled 2.8 percent, while Turkey’s bond yields rose to the highest in a year after the central bank did not provide funding in its one-week repo auction for a third day and sold dollars. The rand gained for the first time in six days as a rally in metal prices boosted South Africa’s export prospects.
The Shanghai Composite Index extended this week’s slump to 4.1 percent, the most since Feb. 22. Everbright Securities Co. sank 6 percent after it received a notice from the regulator that it was probing the brokerage on a planned initial public offering. Money-market rates tumbled after jumping to records yesterday as the monetary authority refrained from using open-market operations to address a cash squeeze. The Hang Seng China Enterprises Index slid 0.3 percent.
South Korea’s won posted the biggest decline since the five days ended Sept. 23, 2011, according to data compiled by Bloomberg. The yield on the 2.75 percent government bonds due March 2018 rose 28 basis points this week and 10 basis points today to 3.26 percent, prices from Korea Exchange Inc. show. That was the biggest weekly increase for a benchmark five-year note since October 2010.
India’s rupee completed its biggest weekly loss since September 2011 after plunging to a record yesterday. The stock benchmark S&P BSE Sensex (SENSEX) added 0.3 percent after slumping the most in 21 months yesterday. Infosys Ltd. increased the most in three weeks.
The extra yield for emerging-market debt over U.S. Treasuries slid five basis points, or 0.05 percentage point, to 342 basis points, cutting this week’s increase to 0.2 percentage point, according to JPMorgan’s EMBI Global Diversified Index.