Emerging Stocks Drop to Four-Month Low on Outflows as Won Drops

Emerging-market stocks extended their weekly decline, with the benchmark index sinking to a four-month low, on concern that slowing economic growth and reduced Federal Reserve stimulus will spur capital outflows. South Korea’s won dropped to the weakest level in four months.

LG Household & Health Care Ltd. (051900) slumped 12 percent in Seoul after KB Investment & Securities Co. downgraded the stock. Indonesian equities sank from the highest level since October. The won and India’s rupee fell at least 0.5 percent versus the dollar. The Shanghai Composite Index rose as money-market rates dropped. Tom DeMark, the developer of market-timing indicators, said the measure may bottom out within days and rebound.

The MSCI Emerging Markets Index lost 0.7 percent to 957.64 as of 1:33 p.m. in Hong Kong, extending a 1.5 percent weekly slide. Stocks have retreated as signs of weakness in China’s economy deepened after a private gauge of manufacturing contracted. Concerns about Fed tapering have fueled the worst selloff in developing-nation currencies in five years. Funds investing in emerging markets had outflows of $2.4 billion in the week ended Jan. 22, according to a report by Citigroup Inc., citing data from EPFR Global.

“Currencies are weakening as economic growth is faltering and earnings are not growing,” Gopal Agrawal, chief investment officer at Mirae Asset Global Investments (India) Pvt., said by phone from Mumbai. “Liquidity may also dry up if the pace of Fed tapering increases.”

Stock Valuations

The MSCI developing-nation gauge has fallen 4.5 percent this year and trades at 9.1 times projected 12-month earnings. The MSCI World Index of developed-nation shares has slipped 0.8 percent in 2014 and is valued at a multiple of 14.7, data compiled by Bloomberg show.

All 10 industry groups in the MSCI emerging markets index fell today, led by consumer-discretionary companies and industrial shares. LG Household & Health Care plunged the most on record after the stock’s rating was cut to hold from buy at KTB Securities. South Korea’s Kospi index lost 1 percent, heading for the lowest close since Sept. 2.

The Jakarta Composite Index retreated 0.9 percent, halting a four-day increase, as PT Bank Rakyat Indonesia lost 2.9 percent. The Philippine Stock Exchange Index slipped for the first time in eight days, poised to snap the longest rally in a year.

Ranbaxy Laboratories Ltd. (RBXY), India’s largest drugmaker, plunged 16 percent in Mumbai after regulators banned it from producing or selling drug ingredients from a fourth plant in India for the U.S. market. The S&P BSE Sensex lost 0.5 percent, the most in a week.

Worst Selloff

The worst selloff in emerging-market currencies in five years is beginning to reveal the extent of the fallout from the Fed’s tapering of monetary stimulus compounded by growing political and financial instability.

The Turkish lira plunged to a record yesterday, while Ukraine’s hryvnia sank to a four-year low and South Africa’s rand weakened beyond 11 per dollar for the first time since 2008. Argentine policy makers devalued the peso by reducing support in the foreign-exchange market, allowing it to drop the most in 12 years to an unprecedented low.

A Bloomberg customized gauge tracking 20 emerging-market currencies fell 0.3 percent yesterday to 90.16, the lowest level on a closing basis since April 2009. The index fell 9.3 percent over the past 12 months, the biggest annual decline since the period ending in January 2009.

Chinese Shares

The Shanghai Composite Index (SHCOMP) rose 0.8 percent to the highest level in three weeks. The seven-day repurchase rate, a gauge of interbank funding availability, slid 96 basis points to 4.34 percent.

Poly Real Estate Group Co. surged to a five-week high and real-estate companies jumped the most among industry groups after Shenyin & Wanguo Securities Co. said developers may rally 20 percent from current levels.

The Shanghai Composite may slip to as low as 1,952, or 4.4 percent below yesterday’s close, and then rally “sharply,” DeMark wrote in an e-mailed response to questions from Bloomberg News. The measure, which touched an intraday low of 1,984.82 on Jan. 20, has lost 3.5 percent this year. DeMark predicted the measure’s rally in June.

The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong retreated 0.9 percent.

South Korea’s Kospi Index (KOSPI) fell 1.2 percent, the lowest since Sept. 2. The FTSE Bursa Malaysia KLCI Index and India’s S&P BSE Sensex dropped at least 0.3 percent.

To contact the reporter on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net

To contact the editor responsible for this story: Michael Patterson at mpatterson10@bloomberg.net

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