Emerging-market stocks fell to a month low as the Group of Seven nations agreed to act against Russia and Standard & Poor’s cut the country’s rating. The ruble sank as a surprise rate increase failed to prop up the currency.
The MSCI Emerging Markets Index dropped 1.1 percent to 993.35, capping a second week of losses. The ruble extended this year’s plunge to 8.8 percent while the Micex Index slumped to the lowest level in six weeks amid concern that higher borrowing costs will hamper growth. Commodity producers including Vale SA (VALE5) and Petroleo Brasileiro SA led declines in Brazil’s Ibovespa and the real fell the most among 31 major currencies.
The G-7 is preparing new measures against Russia, German Chancellor Angela Merkel said, after U.S. Secretary of State John Kerry accused the country of trying to impose its will at “the barrel of a gun.” Russia’s credit rating was reduced to the lowest investment grade at S&P, which said further downgrades are possible, while the central bank in Moscow unexpectedly increased its one-week auction rate to 7.5 percent.
“The overriding theme is Russia,” Chad Morganlander, a Florham Park, New Jersey-based portfolio manager for Stifel Nicolaus & Co., which oversees more than $150 billion, said in a phone interview. “There’s fear of an acceleration of hostility that will impact economic trade. It casts a huge net of uncertainty and the market’s reflex is to run toward safety.”
The Micex extended this week’s slide to 5.6 percent in Moscow as OAO Magnit, Russia’s largest retailer, tumbled 4.2 percent. The ruble weakened 0.8 percent against the dollar.
Discussions by the G-7 accelerated after Russia renewed military exercises on Ukraine’s border. The European Union is preparing to impose sanctions against an additional 15 Russians in positions of power after the weekend, a diplomat said.
Today’s interest-rate decision by Russia’s central bank came as a surprise after 22 of 23 economists in a Bloomberg survey forecast no change.
“What we’re seeing now is a pretty permanent exodus from Russia and it will be very difficult for the central bank to fight it, because a consequence of this is a further drop in economic activity,” Lars Christensen, chief emerging-market analyst at Danske Bank Danske Bank A/S in Copenhagen, said by phone. “They frankly seem quite desperate in their actions.”
Brazil’s Ibovespa posted its first weekly decline since mid-March as Vale, the largest iron-ore producer, sank 2.3 percent. Oil company Petrobras snapped a two-day rally. The real dropped 1.3 percent as the central bank refrained from calling an auction to roll over foreign-exchange swaps, adding to speculation that it’s easing support for the currency.
China’s stocks fell, sending the benchmark index to its steepest weekly loss in three months, after the nation’s biggest liquor maker reported slowing profit growth and concern grew that new share sales will divert funds. The yuan slipped for a sixth day to the lowest level since October 2012.
To contact the editors responsible for this story: Nikolaj Gammeltoft at email@example.com Rita Nazareth, Zahra Hankir