Emerging Stocks Drop on China Concern as Real, Ringgit Slump

  • Brazil's stocks, currency tumble on worsened export outlook
  • Raw-material shares fall the most among 10 industry groups

Emerging-market stocks slid to a three-week low and currencies weakened amid signs that China’s economic slowdown is deepening, hurting profit outlooks for mining companies and other exporters.

The Bloomberg Commodity Index slumped 1.3 percent, ending a two-day gain after a report showed profits for China’s industrial companies fell the most in at least four years. Equities in Brazil, which sends about 20 percent of its exports to China, fell to the lowest since 2009 as the real weakened for a second day. The ringgit tumbled to a 17-year low amid a U.S. investigation of a Malaysian state investment company. Zambia’s kwacha slid to the weakest on record after Moody’s Investors Service downgraded the country’s credit rating.

The industrial-profit figures were the latest sign that the magnitude of the slowdown in the world’s second-largest economy may be worse than forecast. Data this month showed a gauge of manufacturing fell to the lowest level since the depths of the global financial crisis. Developing-nation stocks sank 4.9 percent last week amid the widest price swings in four years as Federal Reserve officials said the U.S. is on track to raise rates for the first time since 2006 by year-end, damping demand for riskier assets.

“There is cash lying around to be invested, but there is no point in putting that cash to work if either the Fed or China can spoil the party,” Simon Quijano-Evans, the chief emerging-market strategist at Commerzbank AG in London, said by e-mail. “I am holding onto safe-haven recommendations for the time being, which means central, eastern Europe, but also India and the Philippines” in bonds, he said.

The MSCI Emerging Markets Index fell 1 percent to 781.57. A gauge of 20 currencies slid 0.6 percent, declining for the sixth time in seven days and returning to record low levels. Losses for exchange-traded funds resumed last week, with outflows for 12 of the past 13 weeks totaling $12 billion, according to data compiled by Bloomberg.

All 10 industry groups in the MSCI gauge fell on Monday, led by a 2 percent drop in raw-material stocks. The measure trades at 10.4 times 12-month projected earnings, a 28 percent discount to the MSCI World Index.

The Ibovespa tumbled 2 percent, led by a 7.4 percent plunge in iron-ore exporter Vale SA. The real weakened 3.1 percent against the dollar. Brazilian assets have been slumping on concern President Dilma Rousseff’s policies won’t be enough to prevent further credit-rating downgrades after Standard & Poor’s cut the country to junk. Sentiment worsened as the data from China, Brazil’s biggest trading partner, stoked concern that exporters’ profits will be hurt by the Asian nation’s economic slowdown.

South Africa, Russia

South Africa’s benchmark stock gauge slumped 1.7 percent as the rand weakened 1.1 percent to a record low against the dollar. Natural-gas producer Gazprom PJSC led a 1.4 percent drop in the Micex Index. The ruble fell 0.8 percent as oil, Russia’s biggest export, dropped for the first time in three days.

The S&P BSE Sensex Index dropped 1 percent. Tata Motors Ltd. was the worst performer in the Indian stock benchmark, slumping 6.1 percent to a two-year low. China is the automaker’s largest market, according to data compiled by Bloomberg.

“There is growing pessimism about global demand -- slowing growth in China and worries that the U.S. may not be immune from weakness in emerging markets,” Charles Robertson, chief economist at Renaissance Capital in London, said by e-mail.

Ringgit, Kwacha

The ringgit slid 0.9 percent to 4.4235 per dollar. The currency weakened beyond 4.39 against the greenback on Friday for the first time since the Asian financial crisis prompted Malaysia’s central bank to implement capital controls. 1Malaysia Development Bhd. is being probed by the U.S. Federal Bureau of Investigation over money laundering, while the U.S. Justice Department is looking into property purchases associated with Prime Minister Najib Razak’s stepson, according to reports from the Wall Street Journal and New York Times over the past week.

The kwacha slid 11 percent to 12 per dollar, the weakest level since at least 1994. Moody’s cut the credit rating for Africa’s second-biggest copper producer one level to B2, five steps below investment grade, on Sept. 25, citing lower growth and an extended period of weak commodity prices.

The Shanghai Composite gained 0.3 percent, paring its biggest quarterly loss since 2008, as a rally for technology companies overshadowed the industrial profit report.

Trading volumes in Shanghai were 55 percent below the 30-day average before the National Day holiday that starts on Oct. 1. Industrial companies’ profits plunged 8.8 percent in August, compared with a 2.9 percent drop in July.

The premium investors demand to own emerging-market debt over U.S. Treasuries widened 13 basis points to 424 basis points, according to JPMorgan Chase & Co. indexes. Markets in Hong Kong, South Korea, Taiwan and the Czech Republic were closed for holidays.

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