Emerging-market stocks retreated from a four-month high, trimming their weekly advance, as India’s banks drove a slump in financial shares after the nation’s central bank unexpectedly lifted interest rates.
The MSCI Emerging Markets Index declined 0.9 percent to 1,013.17, paring a weekly rally to 2.7 percent. The S&P BSE Bankex sank 4.2 percent, sending India’s benchmark equity index down from a three-year high. Prague’s PX index dropped the most among major developing-nation equity gauges, while the Borsa Istanbul National 100 Index tumbled after entering a bull market yesterday. South Africa’s rand led losses among 21 out of the 24 emerging-market currencies tracked by Bloomberg.
Stocks fell after India’s central bank Governor Raghuram Rajan surprised economists by raising the benchmark rate in his first policy review, seeking to rein in inflation. Federal Reserve Bank of St. Louis President James Bullard said a small tapering of bond buying is possible next month after the Fed made a close call this week in deciding not to slow purchases. The iShares MSCI Emerging Markets Index exchange-traded fund dropped a second day after rallying 4.2 percent on Sept. 18.
“It’s a knee-jerk reaction by the market to say ‘oh they are rising interest rates, it is bad for banks,’” Christian Keller, the head of emerging-market research at Barclays Plc in London, said by phone. “A lot of people were rather betting on easing of monetary policies in India.”
Financial shares led losses among the 10 industries in the MSCI Emerging Markets Index, dropping 1.3 percent as a group. The measure for developing markets extended this year’s decline to 4 percent, trading at 10.7 times projected earnings, according to data compiled by Bloomberg. That trails the 14 valuation of the MSCI World Index.
The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, rose 8 percent to 23.55.
Stocks in developing nations capped a third weekly gain as the Fed unexpectedly refrained from reducing its $85 billion in monthly asset purchases, saying it needs to see more signs of sustained labor market gains.
“The emerging markets overall seemed to rally on the idea that there wasn’t going to be a giant sucking sound of liquidity as a result of the Fed cutting back on its stimulus,” Brian Jacobsen, who helps oversee $221.2 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said by phone.
Brazil’s Ibovespa fell 1.8 percent as exporters including iron-ore producer Vale SA tumbled with commodity prices. Banco Bradesco SA led declines among banks.
Russia’s Micex Index trimmed its weekly gain to 2.5 percent. OAO Mechel, the nation’s biggest producer of coal for steelmakers, slumped 1.7 percent. Prague’s PX index sank the most in three months New World Resources Plc (NWR), the largest coking-coal producer in the Czech Republic, extended a two-day plunge to 18 percent. The Borsa Istanbul National 100 Index sank 2 percent as Turkiye Garanti Bankasi AS (GARAN) tumbled.
India’s S&P BSE Sensex slid 1.9 percent, paring the week’s gain to 2.7 percent as ICICI Bank Ltd. (ICICIBC), the second-biggest lender, tumbled. The rupee fell, paring the week’s advance to 2 percent, prices from local banks compiled by Bloomberg show.
Asian currencies rallied this week by the most in a year as Malaysia’s ringgit strengthened 4 percent, the Thai baht appreciated 2.9 percent and the Indonesian rupiah gained 0.5 percent. Global funds bought $494 million more stocks than they sold in the first four days of the week in Indonesia, the Philippines and Thailand.
South Africa’s rand dropped 1.9 percent, the most in a month. The currency rose 0.4 percent for the week.
The premium investors demand to own emerging-market debt over U.S. Treasuries rose one basis point, or 0.01 percentage point, to 314 basis points, according to JPMorgan Chase & Co.
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