Emerging Stocks Drop With Commodities as Growth Concern Lingers

  • South Africa, Poland equities decline for a second day
  • Swiss, Singapore money-laundering probes weigh on ringgit

Emerging-market stocks fell the most in a week as oil deepened its decline and concern mounted that the contagion from China’s economic slowdown is spreading. A gauge of developing-nation exchange rates dropped for a second day, led by the Russian ruble.

South African equities slid for a second day as the World Bank said the continent’s second-largest economy is flirting with stagnation. The Ibovespa fell the most since August 2011 as Brazilian commodity exporters including Vale SA slid with raw-material prices. Polish banks led the benchmark gauge in Warsaw to its biggest drop in two weeks. Malaysia’s ringgit weakened 1.3 percent after Singapore seized bank accounts related to possible money laundering associated with a state investment company.

Stocks retreated as optimism that central banks from Japan to Europe are ready to spur economic expansion faded, while low energy prices and signs that the slowdown in China is deepening stoked concern that global growth is faltering. The Shanghai equity gauge rose as the central bank injected cash into the financial system before next week’s holidays. Chinese shares are still the world’s worst performers this year amid record capital outflows.

“Commodities are back in the forefront of everybody’s mind,” Logan Best, vice president of equity trading at INTL FCStone, said by phone from Winter Park, Florida. “Once the rally from the Bank of Japan settled in, we are seeing some weakness in the markets with the oil plunge and expectations of lower treasury yields.”

The MSCI Emerging Markets Index fell 1.9 percent to close at 728.71 with all 10 industry groups retreating. The equity benchmark trades at 10.7 times the 12-month projected earnings of its members, about 28 percent cheaper than the valuation for advanced-nation shares.

The Bloomberg Commodity Index dropped 1.5 percent to a one-week low. The developing-nation stock gauge rallied 4.9 percent in the previous four days on signs the U.S. Federal Reserve won’t raise borrowing costs this quarter and as the Bank of Japan adopted a negative interest rate policy. 

The FTSE/JSE Africa All Share Index in Johannesburg lost 2.1 percent. South Africa’s economy is at risk of falling into recession, the World Bank said, as it cut the nation’s growth forecast for this year to 0.8 percent. Growth in Africa’s second-largest economy is under pressure following a slump in commodity prices, weakening demand from China and the worst drought in more than a century.

Shares in India slipped for a second day, pushing the benchmark S&P BSE Sensex Index down 1.2 percent. The Reserve Bank of India left its benchmark interest rates unchanged, while pledging to continue an accommodative stance based on the inflation trajectory.

Polish banks dragged the WIG 20 Index in Warsaw down 2.6 percent, the most since Jan. 18. PKO Bank Polski SA retreated 6 percent after Societe Generale SA advised investors to sell shares in Poland’s largest lender.

Brazil, China

Brazilian shares fell for the first time in five days. The Ibovespa slumped 4.9 percent. Vale, the world’s biggest iron-ore producer, tumbled 9.5 percent. Itau Unibanco Holding SA, Latin America’s biggest bank, sank 8.7 percent after it said delinquency rates and provisions for bad loans rose in the fourth quarter.

The real weakened 0.7 percent versus the dollar after data showed industrial production declined 0.7 percent in December from a month earlier. The median estimate of economists surveyed by Bloomberg was for Brazil’s output to remain unchanged.

The Hang Seng China Enterprises Index fell 1.1 percent in Hong Kong, while the Shanghai Composite Index jumped 2.3 percent. The People’s Bank of China will inject 100 billion yuan ($15 billion) into the banking system using reverse repurchase agreements on Tuesday, according to two traders at primary dealers required to bid at the auctions, as demand for cash rose in the run-up to the lunar New Year.

Currencies, Bonds

The ringgit fell 1.3 percent, as Singapore seized bank accounts related to possible money laundering associated with 1Malaysia Development Bhd. That followed the Swiss Attorney General’s announcement last week that it’s pursuing an investigation into alleged diversion of funds from 1MDB. The local markets reopened after a public holiday on Monday.

The ruble weakened 3.1 percent. South Africa’s rand and the Mexican peso declined at least 1.3 percent. India’s rupee dipped 0.2 percent after the country’s central bank left interest rates unchanged at 6.75 percent. A Bloomberg gauge of 20 developing-nation currencies slid 0.9 percent, after losing 1.5 percent in January.

South Korea’s three-year sovereign bond yield fell to an unprecedented 1.52 percent amid speculation that the Bank of Korea will cut interest rates to support growth in Asia’s fourth-largest economy. Official data on Monday showed the nation’s exports contracted for a 13th month in January.

The premium investors demand to own emerging-market debt over Treasuries widened 12 basis points to 474, according to JPMorgan Chase & Co. indexes.

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