Emerging Stocks Drop on China IPO Concern; Currencies Strengthen

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Emerging-market stocks fell to a two-week low as concern grew that new initial public offerings in China will divert funds from existing shares.

The Shanghai Composite Index posted its steepest two-day loss since January and India’s S&P BSE Sensex declined to the weakest level since December. The Ibovespa slid for the first time in four days as analysts cut earnings-per-share estimates for companies in the Brazilian benchmark. Most developing-nation currencies strengthened against the dollar as U.S. hiring data added to speculation that the Federal Reserve will keep interest rates lower for longer.

The MSCI Emerging Markets Index lost 0.7 percent to 1,040.44, its second straight decline from the most expensive level since January 2010. Twenty-five companies in China are scheduled to sell new shares from Tuesday through May 11, which may freeze 2.34 trillion yuan ($376 billion), data compiled by Bloomberg show.

The drop in emerging-market equities on Wednesday is the result of “a combination of upcoming Chinese IPOs and also volatility in bond markets,” Michael Wang, a London-based strategist at Amiya Capital LLP, a hedge fund investing in developing countries, said by e-mail.

Global bond markets have lost about $340 billion since the start of last week as investors ponder the end of a six-year rally that sent yields to record lows. Wednesday’s decline in stocks trimmed the developing-nation index’s gain this year to 8.8 percent. The gauge’s member stocks sell for an average 12.5 times projected 12-month earnings. The MSCI World Index has risen 3.7 percent in 2015 and trades at a multiple of 16.7.

Sensex Falls

Nine of the 10 industry groups in the emerging-market gauge fell Wednesday, led by industrial stocks. The S&P BSE Sensex Index sank 2.6 percent as Sun Pharmaceutical Industries Ltd. and Cipla Ltd., India’s biggest drugmakers, slid at least 2 percent.

The Ibovespa slid 1.6 percent. Brazilian stocks tumbled amid concern valuations they’re overvalued as analysts cut profit forecasts more than in any major market in the Americas. Earnings-per-share estimates for companies in the benchmark were cut by 6.4 percent in the past four weeks, according to data compiled by Bloomberg. The gauge traded at the highest valuation since 2010 yesterday.

A gauge tracking 20 emerging-market currencies rose 0.4 percent. U.S. companies added 169,000 workers to payrolls in April, figures from the ADP Research Institute in Roseland, New Jersey showed. The median forecast of 43 economists surveyed by Bloomberg called for an April advance of 200,000.

China Rally

The Micex index declined 0.4 percent in Moscow, retreating from the highest level in two months. The ruble depreciated 1 percent against the dollar.

The Shanghai Composite slid 1.6 percent, following a 4.1 percent rout on Tuesday, as investors sold the best-performing equities to obtain funds for IPO shares. The gauge has rallied 109 percent over the past year, the most among major global indexes. Hong Kong’s Hang Seng China Enterprises Index fell 0.6 percent to the lowest level since April 10.

Samsung Electronics Co. slid to a two-month low, the biggest drag in MSCI’s emerging markets index. The Kospi index retreated 1.3 percent after a holiday on Tuesday.

The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed six basis points to 323 basis points, according to JPMorgan Chase & Co. indexes.

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