Emerging Stocks Drop as Asia Declines Offset U.S. Rate Outlook

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Emerging-market stocks slumped for a fifth straight day as Asian shares sank amid volatility in China’s equity market, offsetting economic data that weakened the case for an increase in U.S. interest rates.

The MSCI Emerging Markets Index dropped 0.5 percent to 1,004.22, bringing its retreat in May to 4.2 percent. Brazil’s real weakened 0.6 percent to a two-month low against the dollar as a Bloomberg gauge tracking 20 developing-nation currencies posted a 2.1 percent monthly decline.

The Shanghai Composite Index slid 0.2 percent, after a 6.5 percent plunge Thursday, as volatility climbed to the highest since January. Chinese stocks slid as brokerages tightened lending restrictions and policy makers drained cash from the financial system. Revised data showed the U.S. economy contracted 0.7 percent in the first quarter, damping speculation that the Federal Reserve will move quickly to raise near-zero interest rates that have bolstered demand for riskier assets.

“We’re seeing increased volatility in China, and this volatility is spreading to other Asian countries and dragging the entire emerging-markets index down,” William Jackson, an analyst at Capital Economics Ltd. in London, said by phone. “Europe is down amid concern over the debt talks in Greece, and this is probably overshadowing the revised GDP data from the U.S.”

Greece Talks

The revised U.S. gross domestic product data released Friday compared with a previously reported 0.2 percent increase and was better than the median forecast of economists surveyed by Bloomberg, who expected a 0.9 percent contraction. A separate report showed American consumer confidence at a six-month low. European policy makers gathered for a Group of Seven meeting warned that a deal to unlock a further loan disbursement still wasn’t in sight after months of negotiation.

Korea Aerospace Industries Ltd. sank 6.9 percent to lead industrial shares lower. The stock fell to the lowest since May 8 after MoneyToday reported that its major shareholders will resume a stake sale. Evergrande Real Estate Group Ltd. plunged 27 percent in Hong Kong after raising a net HK$4.6 billion ($593 million) below a marketed price range.

Nine out of 10 industry groups in the MSCI Emerging Markets Index dropped, led by energy companies. The gauge has gained 5 percent this year and trades at 12.1 times the projected 12-month earnings of its member companies. The MSCI World Index has risen 4.1 percent in 2015 and trades at a multiple of 16.7.

China Volatility

The Micex Index slumped 2.9 percent in Moscow as natural gas exporter OAO Gazprom tumbled the most in two months. Brazilian lenders led a 2.3 percent decline in the Ibovespa. India’s benchmark gauge rallied 1.2 percent as banks and drugmakers climbed before the release of economic growth data.

Chinese stocks capped a volatile week of trading with a second day of losses amid concern that the nation’s world-beating rally has gone too far, too fast. The Shanghai Composite Index lost 0.2 percent, after swinging between gains of as much as 1.7 percent and losses of 4.1 percent. The Hang Seng China Enterprises Index of mainland stocks traded in Hong Kong slumped 0.6 percent.

Evergrande plunged the most on record after being forced to cut the price of a share sale that analysts said will do little to reduce the company’s indebtedness.

The premium investors demand to own emerging-market debt over U.S. Treasuries increased two basis points to 343 basis points, according to JPMorgan Chase & Co. indexes.

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