Emerging-Market Rout Worsens as China Lending Signals Slowdown

  • Ruble, won among worst weekly performers in emerging markets
  • Developing-nation index falls below 50-day moving average

Emerging-market stocks posted the biggest weekly drop since September and currencies slid as the worsening commodities rout and slowing credit growth in China undermined the outlook for global economic expansion and trade. The Colombian peso slumped to a six-week low, leading currencies lower.

Equity gauges in Taiwan, South Africa and Colombia led losses this week as the MSCI Emerging Markets Index pierced through the 50-day moving average for the first time since May. Energy companies paced weekly declines among 10 industry groups as Brent crude traded below $45 a barrel amid a bigger-than-expected U.S. glut. Russia’s ruble had its worst weekly drop in more than two months, while the currency of net-oil-importer Turkey advanced the most among peers. China stock-index futures slid after the country doubled margin requirements for stocks trading.

Oil, China Credit Weigh on Markets
Oil, China Credit Weigh on Markets

Concerns are mounting that China’s faltering economy will deepen a rout in commodities as investors brace for the first U.S. interest-rate increase since 2006. China’s broadest measure of new credit slumped to the lowest level in 15 months and came in less than half the median forecast. The figures rattled emerging countries that rely on the second-largest economy for their exports.

“The China data is another wake-up call that the world is importing disinflation or deflation from China,” said Simon Quijano-Evans, the chief emerging-market strategist at Commerzbank AG in London, who said net commodity importers Turkey and India stand out in developing countries. “It is now the top-of-the-mind concern for not just in the emerging-market space but in the developed-market space as well.”

Fed Decision

Federal Reserve officials on Thursday emphasized the need for a cautious approach to monetary policy, even as they repeated their preference for an increase in borrowing costs this year. The prospect for an end to near-zero U.S. interest rates has dragged down riskier assets in 2015 because it undercuts the case for investing in riskier assets that offer higher returns.

The MSCI emerging markets gauge decreased 1.5 percent to 821.12, taking declines this week to 3.7 percent. An index tracking 20 currencies in developing countries retreated, sending the measure toward its fifth weekly slide. The premium investors demand to own emerging-market bonds over U.S. Treasuries widened four basis points to 388, according to JPMorgan Chase & Co. indexes.

China Margin

China cut in half the amount of borrowed money investors can use to buy shares, a move that is likely to weigh on investor sentiment when mainland markets re-open on Monday. FTSE China A50 Index futures dropped 2.2 percent. The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF retreated 3.3 to $36.18 in New York.

Brent fell 1 percent to $43.61 a barrel on Friday after sliding 7.1 percent in the previous two days. The ruble fell 0.2 percent on Friday, extending losses of 3.3 percent for the week. Russia’s main export earner is oil and the ruble’s correlation with oil is near record levels. Russia’s MICEX Index of equities fell 1.5 percent this week.

Bearish News

Turkey’s lira advanced 1.9 percent for the week. The country, which imports more than 90 percent of its oil, reported data on Nov. 11 showing it posted a current-account surplus for a second month in September, the first time that’s happened since 2004.

Hong Kong’s Hang Seng China Enterprises Index declined 2.2 percent and the Shanghai Composite Index dropped 1.4 percent on Friday. Aggregate financing slid to 476.7 billion yuan ($75 billion), the People’s Bank of China said after the market closed on Thursday.

China’s credit growth data rounds out a week of mixed readings that have showed falling exports, tame inflation, slowing industrial output, and a rare bright spot in the form of increased retail spending. The readings underscore the government’s challenge to kick start growth in an economy weighed by overcapacity and debt.

“The news-flow will support more of the bears than the bulls in the near term,” Attila Vajda, managing director of Project Asia Research & Consulting Pte., a Singapore-based advisory firm, said from Ho Chi Minh City.

Indian equities fell 1 percent after the nation’s consumer prices accelerated in October from a year earlier. Stock gauges in South Korea and Taiwan lost at least 1 percent.

The Colombian peso slid 1.3 percent on Friday, for an eighth day of losses. The central bank is due to publish minutes of its Oct. 30 meeting when it unexpectedly raised interest rates. The Brazilian real weakened 2 percent, leading daily world losses.

Currencies in emerging Europe were among the worst performers against the euro on Friday after euro-area economic growth unexpectedly slowed in the third quarter, underscoring the vulnerability of the region’s recovery as the European Central Bank examines the need for fresh stimulus. Polish five-year bonds climbed for the third time this week.

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