Emerging Markets in Flux as China Takes Steps to Shore Up Stocks

Sidestepping Commodities: Spotlight on Emerging Markets
  • Currencies fall third day as Turkish lira, Polish zloty drop
  • Brazilian stocks rise for first time in almost two weeks

China’s efforts to stabilize share prices after Monday’s rout did little to boost emerging markets.

The MSCI Emerging Markets Index of stocks ended the session little changed after swinging between gains and losses. The measure slumped the most in four months on Monday. A gauge of 20 developing-nation currencies declined for a third day. China’s CSI 300 Index, which includes mainland equities known as A shares, rose as state-backed funds were said to intervene after a 7 percent plunge Monday triggered a trading halt under a new circuit-breaker mechanism.

“The Chinese authorities have stepped in to stabilize the A-share market, but otherwise, I can’t see anything to merit specific buying,” said Tony Hann, the head of emerging equities at Blackfriars Asset Management Ltd. in London, who avoids energy stocks in favor of consumer-oriented assets. “Markets look a little oversold after yesterday, which might be encouraging some short-term traders, but there are no new positive drivers.”

The worst-ever start to a year for Chinese stocks sparked a selloff in Asia, Europe and the U.S. on Monday after weak factory data spurred concern that the country’s economic slowdown will curb global growth.  The country’s state-controlled funds bought equities and the securities regulator signaled a selling ban on major investors will remain beyond this week’s expiration date, according to people familiar with the matter.

Stocks

The MSCI Emerging Markets Index increased less than 0.1 percent to 768.46 swinging from a decline of 0.3 percent to a 0.5 percent gain. A rebound in Brazil helped buoy the developing-nation benchmark. The gauge traded at 10.9 times the average projected 12-month earnings of its members, compared with a multiple of 15.4 for the MSCI World Index.

The Ibovespa climbed 0.7 percent in Sao Paulo. The Brazilian equity measure rose for the first time since Dec. 23 as bargain hunters buoyed a stock market that slumped to a six-year low on Monday.

In China, the CSI 300 climbed 0.3 percent after dropping as much as 2.7 percent at the open. The Shanghai Composite Index slipped 0.3 percent, while the Hang Seng China Enterprises Index fell 1 percent, extending its steepest decline since August on Monday. The yuan advanced from a five-year low.

Chinese government funds purchased local stocks on Tuesday, said the people familiar with the matter, who asked not to be identified because the buying wasn’t publicly disclosed. The China Securities Regulatory Commission asked exchanges verbally to tell listed companies that the six-month sales ban on major stockholders will remain valid beyond Jan. 8, the people said.

Currencies

The Chinese regulator also suggested it’s open to tweaking the circuit breakers. The central bank conducted the biggest reverse-repurchase operations since September, adding funds to the financial system after money-market rates climbed to an eight-month high.

Turkey’s lira weakened 0.7 percent against the dollar. South Africa’s rand slid 0.4 percent. The Polish zloty slipped 0.2 percent against the euro.

A gauge of currencies that tracks 20 emerging-market exchange rates against the dollar slid 0.1 percent, after after falling 0.8 percent on Monday to close at a record low. Brazil’s real helped limit declines, strengthening 0.8 percent.

The premium investors demand to own emerging-market bonds over U.S. Treasuries narrowed four basis points to 417. The spread widened 61 basis points in 2015, the most in four years.

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