Emerging Stocks Fall for Fifth Week as China Enters Correction

Updated on

Emerging-market stocks posted a fifth straight weekly drop as Chinese shares entered a correction after the country’s longest-ever bull market.

The Shanghai Composite Index slumped 6.4 percent, pushing its decline from a seven-year high on June 12 to 13 percent. The Ibovespa dropped the most in two-weeks as arrests were made in connection with a probe of Brazilian oil producer Petroleo Brasileiro SA. Developing-nation currencies ended a three-day advance as European leaders prepared to convene an emergency summit on the Greek debt crisis.

The MSCI Emerging Markets Index slid 0.3 percent to 974.56, pushing its weekly drop to 0.5 percent. Strategists at BlackRock Inc., Credit Suisse Group AG and Bank of America Corp. issued bubble warnings this week after the market value of Chinese shares jumped by more than $6 trillion in 12 months. The European Central Bank will review Greece’s emergency funding for its lenders again on Monday, a European Union official said.

“Chinese stocks have had a disappointing end of week, as too-stretched valuations” weighed on assets, Martial Godet, head of emerging-market equities and derivatives strategy at BNP Paribas SA in Paris, said by e-mail. “All eyes are on Europe and Greece. In case of an agreement next week, we expect ‘risk-on’ markets.”

The developing-nation stock gauge has risen 1.9 percent this year and trades at 11.8 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has gained 3.8 percent in 2015 and is valued at a multiple of 16.5.

China, Brazil

At 19.7 percent, Chinese equities have the heaviest weighting on the MSCI emerging-market index. The Shanghai Composite Index slid to the lowest level since May 20 on Friday.

China’s 928-day bull market is the longest since the nation’s bourses opened for trading in 1990 and more than five times the average lifespan of its previous bull markets.

Initial public offerings in the country this week will lure about 6.7 trillion yuan ($1.1 trillion) of bids, according to a Bloomberg survey of forecasters.

Petrobras slumped 2 percent in Sao Paulo. The stock dropped as the heads of two of Brazil’s largest conglomerates were detained by police as part of a widening corruption investigation at the state-run oil company. The Ibovespa fell 0.9 percent.

Seven out of 10 industry groups in the developing-nation stock index declined, led by consumer staples companies. A Bloomberg gauge of 20 emerging-market currencies fell 0.2 percent. The ruble 1.1 percent against the dollar as oil, Russia’s biggest export, declined.

The premium investors demand to own emerging-market debt over U.S. Treasuries widened four basis points to 353 basis points, according to a JPMorgan Chase & Co. index.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE