Emerging-market stocks dropped to the lowest level in a year as China’s CSI 300 (SHSZ300) Index entered a bear market after the central bank signaled it will keep efforts to curb credit growth. Bond yields surged and currencies weakened as Turkey’s lira slumped to a record low.
The MSCI Emerging Markets Index declined 1.9 percent to 883.34, extending a plunge from its Jan. 3 high to 18 percent. The CSI 300 slid 6.3 percent, sinking 22 percent from this year’s peak, while the Shanghai Composite Index capped the biggest retreat since August 2009. Turkey’s lira weakened a sixth consecutive day and Russia’s 2030 Eurobond yield jumped to the highest level in 18 months. The premium investors demand to own emerging-market debt over U.S. Treasuries climbed to an 11-month high, according to JPMorgan Chase & Co.
Chinese stocks led losses in developing nations as the People’s Bank of China said there’s a reasonable amount of liquidity in the financial system and urged banks to control risks from credit expansion and Goldman Sachs Group Inc. said a cash squeeze is hurting growth. China’s worst cash squeeze in at least a decade may weigh on smaller banks’ financial strength as their reliance on interbank funding leads to an erosion of loan margins, according to Moody’s Investors Service.
“There’s a lot of information that came out about China and whether the financial structure is as sound as we thought it was,” Walter ‘Bucky’ Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama, said by phone. “The summary of all the information pressures emerging markets.”
All 10 groups in the MSCI Emerging Markets Index fell today by at least 1 percent, led by commodity companies. The measure of developing-nation stocks is trading at 9.2 times estimated earnings, a one-year low according to data compiled by Bloomberg. Shares in the MSCI World Index of developed markets are valued at 12.8 times projected profits.
The iShares MSCI Emerging Markets Index exchange-traded fund slid 2 percent to $36.65. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, surged 13 percent to 38.
Brazil’s Ibovespa tumbled 2.3 percent, extending this year’s decline to 25 percent, the most among major emerging markets. Iron-ore producer Vale SA contributed the most to the benchmark stock gauge’s decline.
The Micex Index (INDEXCF) slid 0.7 percent as OAO Sberbank, Russia’s biggest lender, fell to the lowest level since November 2012. The yield on the nation’s Eurobonds due March 2030 rose 32 basis points to 4.64 percent, the highest since December 2011.
Benchmark gauges in the Czech Republic, South Africa, Thailand and the Philippines fell at least 2.4 percent. South Korea’s Kospi Index (KOSPI) to an 11-month low, while The Borsa Istanbul Stock Exchange National 100 Index tumbled to the lowest level since November 2012. Poland’s WIG20 Index rose 0.5 percent as Eurocash SA surged.
The lira fell to its lowest level since at least 1981 as Turkey’s central bank’s planned dollar sales failed to stem the fallout from a signal to scale back U.S. stimulus. India’s rupee fell, extending a seven-week slide, as global investors boosted sales of local bonds and stocks.
China Minsheng Banking Corp. (600016) and Ping An Bank Co. plunged 10 percent, while a gauge of Chinese financial companies tumbled 7.6 percent for the biggest loss among industry groups. China Vanke Co. led declines for developers with an 8.8 percent slump. The Hang Seng China Enterprises Index, which entered a bear market earlier this month, lost 3.2 percent.
The extra yield for emerging-market debt over U.S. Treasuries rose 12 basis points to 362 basis points, according to JPMorgan’s EMBI Global Diversified Index.
The only three emerging-market stock pickers who avoided losing money for clients in the worst first-half rout since 1998 say now’s the time to buy Philippine retailers, Chinese Internet companies and Indian drugmakers.
Lewis Kaufman, whose Thornburg Developing World Fund (THDAX) rose 3.2 percent, the most among U.S.-domiciled emerging-market mutual funds overseeing at least $100 million, says Manila-based Puregold Price Club Inc. (PGOLD) will benefit from 20 percent sales growth. CNI Charter Emerging Markets Fund’s Anindya Chatterjee boosted his position in Shenzhen, China-based Tencent Holdings Ltd. (700) as first-quarter profit rose 37 percent. David Semple has been buying Indian pharmaceutical shares for the Van Eck Emerging Markets Fund as the rupee’s tumble boosts exports.
The managers say they weathered this year’s slide in the MSCI Emerging Markets Index by making prescient currency bets and buying companies insulated from economic swings and government interference.
“It’s been an environment where if you picked the right spots, there’s been enough going right to offset the things that are going wrong,” Kaufman, whose fund has about $728 million of assets, said in a June 19 phone interview from Santa Fe, New Mexico. “And there are a lot of things going wrong.”