Emerging Stocks Slump Most in a Month as China Outlook Worsens

  • Russian equities post longest streak of losses in a year
  • Citic Securities falls as probe said to find insider trading

Emerging-market stocks tumbled the most in three weeks and currencies weakened as a surprise decline in a Chinese manufacturing gauge to a six-year low deepened concern that the slowdown in the world’s second-largest economy is curbing global growth.

The Hang Seng China Enterprises Index sank 2.7 percent and the Shanghai Composite Index ended a three-day advance. Citic Securities Co. slumped to an 18-month low in Hong Kong after people familiar with the matter said a government probe has found evidence of insider trading. The ruble slid with oil prices while Russia’s Micex Index posted the longest streak of declines since July 2014. Brazil’s real deepened its drop to record lows as the outlook for China, the country’s biggest trading partner, overshadowed progress in reining in government spending.

The MSCI Emerging Markets Index dropped 2 percent to 791.79, extending its slump to a third day. A Bloomberg gauge tracking developing-country currencies slipped 0.7 percent, dropping for a fourth day in a row. China’s preliminary Purchasing Managers’ Index from Caixin Media and Markit Economics slid to the lowest level since the depths of the global financial crisis. The data underscored concern that the slowdown risks hurting developing countries that rely on China to purchase their exports.

“The Chinese PMI data is negatively impacting sentiment toward emerging markets,” said Michael Wang, a strategist at hedge fund Amiya Capital in London. “It puts downside risk to second-half growth forecasts for China. I have a negative outlook for emerging-market stocks and currencies into the end of the year.”

Stock Valuations

The MSCI emerging-markets stock gauge has fallen 17 percent this year and trades at 10.5 times projected 12-month earnings, a 29 percent discount to the MSCI World Index, according to data compiled by Bloomberg.

The Micex Index fell 1.4 percent, taking its five-day loss to 5.3 percent. GMK Norilsk Nickel PJSC dropped the most since May, leading declines among Russian metal and mining stocks, amid speculation the government will increase taxes on the industry to boost budget revenue.

Ruble, Rand

The ruble weakened 0.5 percent against the dollar. Oil, Russia’s biggest export, retreated after a government report showed that U.S. refineries cut operating rates by the most in eight months, signaling lower demand for crude as units are shut for seasonal maintenance.

The real fell as much as 3.1 percent against the dollar in its fifth straight decline. The currency earlier advanced 0.9 percent on optimism that lawmakers’ failure to overturn some presidential vetoes that had limited government spending signaled a rare success for President Dilma Rousseff’s efforts to shore up fiscal accounts. The Ibovespa stock benchmark slid 2 percent as raw-material exporters including Vale SA declined.

The rand fell 1.3 percent. South Africa’s central bank kept its benchmark interest rate at 6 percent as lower oil prices gave it room to support an economy weighed down by power cuts and falling metal prices.

All 10 industry groups in the developing-nation index fell as gauges of utility, industrial and raw-material stocks each sank at least 2.4 percent.

Citic Probe

The Shanghai Composite lost 2.2 percent and the Hang Seng China Enterprises gauge posted its steepest retreat since Sept. 1. The PMI missed the median estimate of 47.5 in a Bloomberg survey and fell from the final reading of 47.3 in the previous month. Figures have remained below 50 since March, indicating a contraction. Readings of output, new orders and employment all declined at a faster rate, according to the survey, known as the flash PMI.

Citic Securities tumbled 4.4 percent after a Chinese probe found evidence that the nation’s biggest brokerage used advance knowledge of government-orchestrated stock purchases to execute trades that benefited the firm, people familiar with the matter said.

A Citic Securities spokeswoman said the company hasn’t received any formal notification regarding the nature of the investigation. The China Securities Regulatory Commission didn’t immediately respond to a request for comment.

The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed one basis point to 398 basis points, according to JPMorgan Chase & Co. indexes.

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