Emerging-Market Currencies, Stocks Drop as Volatility Increases

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Emerging-market stocks posted a fourth weekly decline and currencies weakened as investors weighed the impact of the Chinese yuan devaluation on developing-nation economies.

The lira sank to a record for a second day after coalition talks between Turkey’s ruling party and opposition collapsed. Russia’s ruble slumped to a six-month low against the dollar as oil fell and Moody’s Investors Service signaled the declining currency is worsening the outlook for the nation’s credit rating. A Bloomberg gauge of 20 currencies declined for the eighth week in a row.

The MSCI Emerging Markets Index slipped 0.1 percent to 863.83, extending its five-day decline to 2.4 percent. Investors pulled money from emerging-market equity funds for a fifth straight week, according to a report from EPFR Global. The People’s Bank of China’s yuan fixing strengthened after the currency slid at least 1.1 percent in each of the last three days.

“The three-day devaluation of the yuan rattled investors,” Joseph Dayan, the head of markets at BCS Financial Group in London, said by e-mail. “For many of the emerging-market economies, Chinese demand for commodities is the single biggest driver.”

The Brazilian meatpacker JBS SA slumped 4 percent in Sao Paulo, leading a 1 percent drop in the Ibovespa equity benchmark. The real strengthened 1.1 percent, rising for the first time in four days.

Price Swings

Historical 50-day volatility in the MSCI gauge of developing-nation stocks increased to 16 percent, the highest level since September 2013. Traders have endured wide price swings as the yuan’s devaluation roiled global markets. The Chinese currency halted a three-day slide on Friday, rising 0.1 percent against the dollar.

The developing-nation equity index has fallen 9.7 percent this year and trades at 11.1 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has gained 2 percent in 2015 and is valued at a multiple of 16.2.

The lira fell 0.5 percent to 2.8354 per dollar as the political fallout spurred bets Turkey is set for its second general election this year. Investor sentiment toward the $800 billion economy soured after the AKP lost its parliamentary majority in June for the first time in more than a decade. A suicide bombing last month blamed on Islamic State, and the subsequent collapse of a peace process with the nation’s restive Kurdish minority, added to concerns.

Ruble, Ringgit

The ruble weakened 0.4 percent against the dollar. The Russian currency is the worst performer in emerging markets with a 15 percent slump this quarter as concern China’s economy is losing steam pummels the price of oil, Russia’s biggest export.

Russia’s $3 billion of bonds due April 2042 fell for a fourth day, lifting the yield seven basis points to 6.5 percent, the highest since March.

A gauge tracking 20 developing-nation currencies declined 0.2 percent, pushing the five-day decline to 0.8 percent.

Eight out of 10 industry groups in the emerging-market equity measure fell as a gauge of technology shares lost 0.4 percent.

The ringgit tumbled 1.7 percent versus the dollar. The Malaysian central bank Governor Zeti Akhtar Aziz said Thursday that the authority will need to rebuild foreign-exchange reserves that have fallen below $100 billion for the first time since 2010.

The Hang Seng China Enterprises Index of mainland-listed companies lost 0.2 percent, reversing an earlier gain. The Shanghai Composite Index added 0.3 percent.

The premium investors demand to hold emerging-market debt over U.S. Treasuries was unchanged at 379 basis points, according to JPMorgan Chase & Co. indexes.

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