- Shanghai Composite falls 6.4 percent to lowest in 13 months
- Iraq says Saudis, Russians more flexible on oil output cuts
Emerging-market stocks snapped a two-day advance as Chinese shares tumbled to a 13-month low on concern outflows will accelerate as the economy slows. Russia’s ruble rebounded with oil following a selloff Monday.
The Shanghai Composite Index slid more than 6 percent after data showed outflows from China reached a record $1 trillion last year, more than seven times higher than in 2014. South Korea’s won and the Taiwanese dollar weakened, while the ruble rallied amid talk that oil producers may be more flexible about cooperating to cut output. The premium investors demand to own developing-nation debt rather than U.S. Treasuries rose for a second day.
The plunge in the Shanghai Composite Index prompted a risk-off environment in emerging markets, said Ben Rozin, a Rochester, New York-based senior analyst at Manning & Napier who prefers Indian and Indonesian stocks. “China is at the forefront of attention, and commodity weaknesses have been very pronounced in the past couple of weeks.”
China’s outflows in December increased by almost $50 billion from a month earlier, highlighting the battle facing policy makers trying to hold up the yuan amid the slowdown, according to estimates compiled by Bloomberg Intelligence. Growth in the world’s second-largest economy is seen dropping further in 2016 from the weakest pace since 1990 last year, damping prospects for exports from emerging economies such as Brazil and South Korea that count China among their biggest trading partners.
The MSCI Emerging Markets Index fell 1.1 percent to close at 708.33 Tuesday, extending this year’s slide to 11 percent. Four of the gauge’s 10 industry groups declined more than 1 percent.
Benchmarks in South Korea and the Philippines lost more than 1 percent and Brazil’s Ibovespa slid 1.4 percent. Economists covering the Latin American country estimated its economy will contract 3 percent this year, more than the previously forecast 2.99 percent, according to a central bank survey published Monday.
The Shanghai Composite Index dropped 6.4 percent to 2,749.79 and the Hang Seng China Enterprise Index of mainland equities listed in Hong Kong fell 3.4 percent. Huang Weimin, whose Chinese stock-index futures wagers returned more than 6,200 percent last year, says the Shanghai gauge could decline another 15 percent in the first half as slowing economic growth and a weaker yuan spur capital flight.
Tuesday’s loss was the steepest since Jan. 7, when the Shanghai gauge plunged 7 percent, the second selloff of more than 6 percent in a week that prompted the government to cancel its circuit-breakers program after four days. Stocks dropped even as the People’s Bank of China injected 440 billion yuan ($67 billion) into the financial system using reverse-repurchase agreements, the most in three years.
The won declined 0.8 percent after a report showed South Korea’s economy expanded 0.6 percent last quarter from the previous three months, when it increased 1.3 percent. Mexico’s peso, which gained 0.8 percent, is poised for a rebound by year end and join the ranks of the stronger currencies in Latin America in the long term, according to Sireen Harajli, a strategist for Mizuho Bank Ltd.
Brazil’s real advanced 1 percent to 4.0514 per dollar in Sao Paulo, joining the rally in the basket of emerging market currencies and offsetting concerns on the country’s recession and the impact of China’s slowdown.
The ruble advanced 2.2 percent after opening lower and then paring losses as oil rose 3.7 percent, placing it as the best performer among emerging-market currencies. The currency’s 30-day correlation with crude was at 0.8 on Tuesday, near the highest since October, according to data compiled by Bloomberg. A value of 1 would mean the two are trading in lockstep. The commodity rallied from below $30 a barrel to as high as $32.41 after Iraq’s oil minister said at a conference in Kuwait that Saudi Arabia and Russia are now more flexible about cooperating to cut output.
The premium investors demand to own emerging-market debt over U.S. Treasuries widened to 468, according to JPMorgan Chase & Co. indexes.
China’s sovereign bonds fell on speculation the central bank is reluctant to use measures such as cutting lenders’ reserve-requirement ratios that might weaken the currency. The 10-year yield climbed to 2.9 percent.
The People’s Bank of China added 440 billion yuan ($67 billion) to the financial system on Tuesday via reverse-repurchase agreements. The biggest injection in three years was aimed at preventing a shortage of cash as demand picks up before the Lunar New Year Holidays that start in the second week of February.