Emerging-market stocks tumbled for a sixth day, the longest losing streak for the benchmark index since February, as concern deepened that the global economy may stall.
The MSCI Emerging Markets Index fell 2.2 percent to 968.51 at 5 p.m. in New York, paring an earlier plunge of as much as 4.4 percent after the Federal Reserve pledged for the first time to keep its benchmark interest rate at a record low at least through mid-2013 to revive the U.S. economic recovery. Russia’s ruble weakened 3.1 percent against the dollar.
The Hang Seng China Enterprises Index sank 6.2 percent after a report showed China’s inflation accelerated to the fastest pace in three years in July, limiting the scope for monetary easing to support growth in the world’s second-biggest economy. U.K. manufacturing unexpectedly fell in June and the trade gap widened, adding to evidence that the economic expansion in developed countries is faltering.
“The economic turmoil may drag down the stock market for the short term and keep it fluctuating at a bottom for some time,” said Sun Zhanjun, a fund manager at Bosera Asset Management Co., which oversees more than $29 billion. “The overwhelming pessimism has swept all markets.”
Weaker-than-estimated economic data from the U.S. to Brazil, along with the unprecedented downgrade of America’s credit rating by Standard & Poor’s and Europe’s ongoing debt crisis, have wiped out $7.9 trillion of global equity market capitalization since July 26. The Federal Open Market Committee is “prepared to employ” additional tools to bolster an economy hobbled by weak hiring and anemic household spending, it said in a statement today in Washington.
The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose nine basis points to 365, according to JPMorgan Chase & Co.’s EMBI Global Index.
The Markit iTraxx SOVX CEEMEA Index of credit-default swaps for emerging Europe, the Middle East and Africa jumped 22 basis points today to 255, the highest level since June 2010, according to data provider CMA in London. Yield spreads on Turkish foreign-currency debt rose 16 basis points, while Ukrainian spreads jumped 42 basis points, according to JPMorgan indexes.
Russia’s ruble fell to the weakest level versus the dollar since January, while South Africa’s rand gained 1.2 percent. Poland’s zloty dropped 0.1 percent versus the euro and the Hungarian forint climbed 0.9 percent.
Benchmark equity indexes in China, Brazil, Chile, Turkey, Colombia, Poland, the Czech Republic and Hungary have retreated at least 20 percent from recent peaks during the global selloff, the level some investors and analysts consider a bear market.
“The current situation could be seen as a fast, complete and unexpected loss of confidence that has been building up over the past few weeks,” Vincent Treulet, the Paris-based head of strategy at BNP Paribas Investment Partners, wrote in a report. “We do not recommend selling anything now. It would not be too late to sell in case a serious crisis materializes, but there are good arguments in favor of at least a stabilization or technical rebound in the near term.”
The Hang Seng China gauge of shares in Hong Kong tumbled the most since March 2009, while the Shanghai Composite Index of mainland-traded shares slipped less than 0.1 percent. Consumer prices climbed 6.5 percent from a year earlier as food costs surged, reports from the Beijing-based National Bureau of Statistics showed today. That was more than the 6.4 percent median estimate in a Bloomberg News survey of 26 economists. In June, inflation was 6.4 percent.
Elevated inflation shows that China is still dealing with the after-effects of an unprecedented monetary expansion during the last global slump and may have limited room for more stimulus. At the same time, a weaker-than-forecast gain in industrial production added to signs that a moderation in economic growth may help to cool price pressures.
Brazil’s Bovespa index surged 5.1 percent today, the most since October 2009, rebounding from yesterday’s plunge of 8.1 percent.
Russia’s Micex Index lost 0.1 percent. Turkey’s ISE National 100 Index rose 1.3 percent. The Czech PX index dropped 2.6 percent, while Hungary’s BUX Index slipped 2.5 percent and Poland’s WIG20 retreated 3.7 percent.
Losses in South Korea and Taiwan dragged benchmark stocks indexes in the two markets down more than 20 percent from their recent highs during intraday trading.
Short Sale Curbs
Taiwan’s government bought stocks yesterday and this morning through four funds it controls, said Philip Yang, a Cabinet spokesman. The Taiex briefly climbed as much as 0.6 percent before erasing gains.
South Korea’s financial regulator will prohibit short sales of all listed stocks until Nov. 9 starting tomorrow, the regulator said today. Short selling has increased during the current market rout, spreading market unrest, the statement said. The commission will also ease the daily volume limit on companies’ buying back shares, it said.
In a short sale, an investor borrows a security and sells it, expecting to profit from a decline by repurchasing it later at a lower price.
Corporate earnings may buffer concerns over U.S. and European debt and the Kospi may reach a bottom this week, Kim Hee Seok, head of the South Korea’s National Pension Service’s investment strategy division, said by phone yesterday. The National Pension Service is the nation’s biggest investor.