Emerging-Market Currencies, Stocks Retreat as Oil Resumes Slide

  • Developing-nation stocks fall for the first time in six days
  • Russian ruble drops most among peers as Brent crude declines

Emerging-market currencies dropped from a two-week high and stocks declined as declining industrial profits in China and falling oil prices weighed on the outlook for economic growth.

A gauge tracking 20 currencies in developing countries fell for the first time in seven days, as a slump in the Russian ruble to a record low outweighed gains in the Brazilian real. Chinese and South Korean shares led declines in Asia as trading resumed in some countries after the Christmas holidays. Industrial profits decreased 1.4 percent year-on-year in November, China’s National Bureau of Statistics said on Sunday. The Ibovespa ended a two-day gain as Brazilian commodity exporters slipped.

While sentiment has shifted to a slightly more positive tone since the U.S. raised interest rates for the first time in almost a decade this month, the focus is still tilted toward China and a collapse in commodities. Oil slid from the highest level in three weeks, snapping the longest run of gains since April as Iran repeated its goal of boosting exports after sanctions on the country are lifted.

“China is down on concern about weak earnings, which is dragging down other
stocks and currencies in Asia," Per Hammarlund, the chief emerging-markets strategist at SEB AB in Stockholm, said by e-mail. “The key asset to follow next year will be oil. Of the main EM currencies, the ruble looks very vulnerable.”

Stock Slump

The MSCI Emerging Markets Index fell 0.5 percent to 800.32, dropping for the first time in six days. The gauge has retreated 16 percent in 2015, on course for its worst annual performance since 2011.

Currencies also have had a rough year, with exchange rates in Turkey, South Africa, Colombia, Brazil and Argentina all falling at least 20 percent against the dollar. The currency gauge is down 14 percent since the start of January, poised for its worst year since 1997.

“Volatility will continue into the first half of 2016 until we see signs that growth has stabilized in China, commodity prices have bottomed out and investors have adjusted to the reality for a continued rise in U.S. interest rates,” said Jonathan Ravelas, the chief market strategist at Manila-based BDO Unibank Inc. “The data coming out of China reinforces a struggling economy, which has been one of the ongoing concerns in the market.”

Relative Valuation

Shares on the MSCI Emerging Markets Index are trading at an average valuation of 11.1 times projected 12-month earnings, a 30 percent discount to advanced-nation shares on the MSCI World Index, which have declined 2.3 percent in 2015.

Last week, developing-nation stocks gained 1.9 percent amid a return to risk appetite that saw investors add money to U.S. exchange-traded funds that buy emerging-market stocks and bonds at the fastest pace in two months.

Eight out of the 10 industry groups on the gauge fell Monday, led by energy and raw-material companies. China Petroleum and Chemical Corp. decreased 3.4 percent in Hong Kong. PT Perusahaan Gas Negara declined 3.9 percent in Jakarta after a 23 percent rally in seven days boosted valuations to the highest in almost a month. 

The ruble slumped 2.1 percent to 72.225 against the dollar. Brent crude, the grade used to price Russia’s main export blend, slid 3.4 percent to $36.62 a barrel. Petroleo Brasileiro SA, the Brazilian state-run oil producer, fell 3.3 percent, contributing to a 0.6 percent decline in the Ibovespa.

The Shanghai Stock Exchange Composite index fell 2.6 percent in its biggest drop since the end of November and South Korea’s Kospi closed 1.3 percent lower. Benchmark gauges in Malaysia, Indonesia and India rose, while Turkish shares increased less than 0.1 percent. Saudi Arabian stocks rose 0.7 percent after the government announced a budget deficit for 2015 that was smaller than economists expected.

Yield Spread

Samsung C&T Corp. dropped 4.8 percent, the most in three months, after South Korea’s antitrust regulator ordered the Samsung Group to cut cross-shareholdings by March or face possible penalties.

Brent crude tumbled as Iran repeated that its priority is to boost crude shipments to pre-sanction levels, according to state-backed IRNA reported, which cited Oil Minister Bijan Namdar Zanganeh. A traditional pick up in end-of-year budget spending is also weighing on the Russian currency by pumping extra cash into companies and banks.

The premium investors demand to own developing-nation debt over U.S. Treasuries was unchanged at 418 basis points, according to JPMorgan Chase & Co. indexes.

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