Emerging Stocks Drop as Fed Outlook Shifts on U.S. Housing Data

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Emerging-market stocks fell as data showing new U.S. home-building at the highest level since 2007 supported the case for the Federal Reserve to raise the near-zero interest rates that have bolstered demand for riskier assets.

Petroleo Brasileiro SA sank the most since February, Brazilian stocks lower. A gauge of energy shares fell to a one-month low as crude tumbled. Equities retreated for a second day in Russia. The ruble fell as most developing-nation currencies declined against the dollar. The Shanghai Composite Index jumped the most in almost four months as investors sought stocks that have underperformed the benchmark amid new share sales.

The MSCI Emerging Markets Index fell less than 0.1 percent to 1,040.89. U.S. housing starts jumped 20 to a 1.14 million annualized rate, the most since November 2007, a Commerce Department report showed. That exceeded the median forecast in a Bloomberg survey. Investors are awaiting minutes from the Federal Reserve’s April meeting this week for further clues on the timing of rate increases.

“Positive housing data means the Fed can start to increase interest rates with a reasonable level of comfort on the positive economic momentum,” Martial Godet, the head of emerging-market equities and derivatives strategy at BNP Paribas SA in Paris, said by e-mail. “This is potentially painful for stocks.”

Relative Value

The developing-nation stock gauge has gained 8.8 percent this year and trades at 12.4 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has gained 5.5 percent in 2015 and is valued at a multiple of 16.8. Emerging-market equities have rallied this year as lackluster U.S. economic data fueled speculation that the Fed would move slowly to raise U.S. interest rates.

Ukraine’s dollar-denominated bond maturing July 2017 dropped 1.41 cents to 44.97 cents. The government plans to present a proposal to parliament on Tuesday requesting powers to impose a debt moratorium on international creditors as negotiations over a $23 billion debt overhaul intensify.

The ruble declined 0.8 percent against the dollar, weakening for the first time in three days. Brent crude, the oil grade traders use to price Russia’s main export blend, sank 3.4 percent to $64.02 a barrel, the lowest level since April 22. A gauge of 20 emerging-market currencies dropped 0.6 percent, falling for a second day.

Brazil, China

“Currency weakness looks to be a function of dollar strength in past two days,” Nathan Griffiths, a senior money manager who helps oversee $1.2 billion at ING Investment Management in The Hague said.

Petrobras tumbled 6.3 percent. The Brazilian state-run oil producer contributed the most to the Ibovespa’s 1.3 percent decline.

Chinese shares halted a two-day retreat. Investors in Shanghai bought companies that declined in recent weeks amid a flood of new-share sales. The Shanghai Composite Index jumped the most in four months. Hong Kong’s Hang Seng China Enterprises Index rose 1.9 percent. South Korea’s Kospi Index gained 0.3 percent to a two-week high.

“Shanghai and Hong Kong markets have corrected a bit recently because huge amount of IPOs has taken liquidity from other names. Now many blue chips are looking relatively attractive again,” Hertta Alava, the head of emerging markets at FIM Asset Management Ltd. in Helsinki, said by e-mail.

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