Emerging Stocks Extend Worst Start to Year Since 1998 on China

  • Philippine shares enter bear market amid China equities rout
  • Developing-nation currency gauge slumps deeper to record low

Emerging-market stocks retreated to the lowest in more than six years and currencies weakened as concern that China’s growth outlook is worsening and a commodity slump pushed investors away of riskier assets.

All 10 industry groups in the MSCI Emerging Markets Index fell as a gauge of energy companies fell to the lowest since September 2004. Philippine shares entered a bear market as Chinese equities on the mainland and in Hong Kong led a rout in Asia. The dollar-denominated RTS Index of Russian stocks plunged 5.1 percent as Brent crude sold for less than $32 a barrel. The ruble fell to its weakest ever against the dollar as trading resumed following a two-day holiday. A gauge of developing-nation exchange rates declined for a seventh day to a record low.

Volatility in Chinese markets has sapped risk appetite globally as extreme swings in local assets rekindle concern about the government’s ability to manage an economy forecast to grow at the weakest pace since 1990. Data over the weekend showed consumer inflation remained at about half the official target while producer prices fell for a 46th month, fueling speculation that the slowdown is deepening.

“The weakness in both the A-share market and the oil price would be the two lead indicators today,” said Tony Hann, the head of emerging equities at Blackfriars Asset Management Ltd. in London, referring to stocks traded on exchanges in mainland China. “Both are perceived as symptoms of weak growth," said Hann, who is avoiding energy stocks in favor of consumer-oriented assets.

Valuation Discount

The MSCI Emerging Markets Index decreased 2.3 percent to 723.36, dragging the average valuation of its member stocks to 10.3 times projected 12-month earnings, the lowest in more than four months. That represents a 30 percent discount to the MSCI World Index of advanced-nation shares.

A gauge of developing-nation financial companies slid 2.9 percent while one tracking energy stocks retreated 3 percent. Brent crude extended its decline to $31.55 a barrel, confirming the view of hedge funds that cut bullish price bets to the lowest since 2010.

The Ibovespa declined 1.6 percent to the lowest since March 2009 as Brazilian commodity producers including Petroleo Brasileiro SA and Vale SA retreated. The real weakened 0.6 percent against the dollar.

China Slump

China Life Insurance Co. fell 5.1 percent and Industrial & Commercial Bank of China Ltd. lost 3 percent in Hong Kong, while Cnooc Ltd. slid 4.2 percent. Hon Hai Precision dropped 3.3 percent in Taipei. Gazprom PAO and Lukoil PJSC each fell more than 3 percent in Moscow.

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong sank 3.9 percent to the lowest closing level since October 2011. The Shanghai Composite Index fell 5.3 percent, extending last week’s 10 percent loss. China’s producer price index slumped 5.9 percent in December from a year earlier.

“Weak Chinese data are creating more uncertainty and increasing risk aversion toward emerging-market stocks and currencies,” said Jonathan Ravelas, the chief marketing strategist at BDO Unibank Inc. in Manila. “Most investors also doubt China’s financial markets will stabilize anytime soon. Given the volatility, it’s best to stay on the sidelines and remain liquid.”

The Philippine Stock Exchange Index declined 4.4 percent, bringing its retreat from the April 10 peak to more than 20 percent, a move that signals a bear market. Measures in Taiwan, Indonesia, Malaysia and South Korea each dropped at least 1 percent.

Currencies

The developing-nation currency gauge fell 0.3 percent. Its seven-day losing streak is the longest since a 10-day loss that ended Aug. 24. 

South Africa’s rand plunged 2.9 percent to a record low close against the dollar, as poor liquidity exacerbated a drop spurred by risk aversion. Russia’s ruble weakened 1.9 percent. The South Korean won fell 1 percent as global funds pulled out of local stocks amid signs of faltering growth in China, the nation’s biggest export market.

China’s yuan ended a three-day decline after the central bank kept its reference rate little changed for a second day, fueling speculation that last week’s bout of weaker fixings has halted for now.

The yuan’s interbank rates climbed in Hong Kong as suspected central bank intervention to prop up the offshore exchange rate last week tightened supply of the Chinese currency. The overnight Hong Kong Interbank Offered Rate jumped 939 basis points to 13.4 percent, the highest since the fixings began in June 2013.

The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed two basis points to 435, according to JPMorgan Chase & Co. indexes.

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