• Energy, raw-material shares slump on commodity demand outlook
  • Ibovespa rebounds as valuations sink to lowest level this year

Emerging-market stocks fell to a five-week low as energy and raw-material companies slumped amid mounting concern that China’s faltering economy will weaken demand for commodity imports.

The MSCI Emerging Markets Index lost 0.7 percent to 776.25 at 11:43 a.m. in New York. Cnooc Ltd. tumbled 7.7 percent in Hong Kong, leading a gauge of energy shares toward the lowest since January 2005. Equities in Dubai declined 0.8 percent, posting the longest losing streak in six weeks. Brazilian stocks rebounded after an eight-day losing streak pushed valuations to the cheapest level since December.

The Bloomberg Commodity Index is headed for its worst quarterly slump since the 2008 global financial crisis amid weakening demand from China. Industrial companies reported profits fell the most in at least four years in China on Monday. A manufacturing report Thursday will probably show a contraction, deepening a slowdown in Asia’s largest economy and hurting developing countries that rely on China to buy their exports. 
 
“We still have no visibility about Chinese growth,” Michael Wang, a strategist at hedge fund Amiya Capital in London, said by e-mail. Stocks are retreating after “the very weak close in the U.S. last night and the worse industrial-profit data from China.”

Quarterly Decline

The emerging-market stock gauge has fallen 20 percent since the end of June, on course for the steepest quarterly drop since 2011. The measure trades at 10.4 times projected 12-month earnings, near the cheapest level since March 2014, data compiled by Bloomberg show. MSCI World Index has decreased 10 percent in comparison and is valued at a multiple of 14.5.

The Federal Reserve will probably raise interest rates later this year and tighten policy gradually thereafter, New York Fed President William C. Dudley said, echoing the sentiment of Chair Janet Yellen that an uncertain global outlook won’t postpone liftoff into 2016. The Fed’s near-zero interest rates have helped prop up demand for riskier assets in developing nations.

The Ibovespa gained 0.7 percent in Sao Paulo, rising from a six-year low. The Brazilian benchmark is valued at 10.3 times the projected 12-month earnings of its members after a 9.5 percent drop in the eight days through Monday. Brazilian assets have slumped amid concern the country won’t be able to avoid another credit-rating reduction after Standard & Poor’s cut it to junk. The real gained 0.3 percent against the dollar.

Russia, China

Stock markets in the Middle East retreated, with the Saudi Tadawul All Share Index losing 1.4 percent and Dubai’s DFM General Index slipping for a fourth day.

The ruble appreciated 0.8 percent, while Russian shares climbed 0.9 percent. Oil, the country’s biggest export, rallied before data expected to show that a decline in U.S. crude supplies continued for a third week. 

Nine out of 10 industry groups in the developing-nations stock gauge fell, led by a 1.3 percent drop in energy companies. Cnooc slid to a six-year low, while PetroChina Co. tumbled 7.3 percent. A gauge of raw-material stocks slumped 0.5 percent to a five-week low.

The Hang Seng China Enterprises gauge fell 3 percent as it was poised for the steepest quarterly drop since 2011. The Shanghai Composite Index slid 2 percent as trading volumes tumbled 52 percent below the 30-day average, ahead of the week-long National Day holiday that starts Thursday. Investors have been withdrawing from Chinese assets amid the weakest expansion in gross domestic product in 25 years and a mainland market rout.

Yield Spread

Indian stocks climbed the most since Sept. 23 after Governor Raghuram Rajan cut the benchmark repurchase rate to 6.75 percent from 7.25 percent. Malaysia’s ringgit lost 0.8 percent versus the dollar, set for its biggest quarterly slide since 1997. 

The premium investors demand to own emerging-market debt over U.S. Treasuries widened five basis points to 433 basis points, according to JPMorgan Chase & Co. indexes.

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