Emerging Stocks Drop on Global Growth Outlook; Ruble Rebounds

  • Chinese shares slide in Hong Kong; Brazil advances with metals
  • Ruble rebounds with oil, while won drops to five-year low

Emerging-market stocks fell for a second day as Chinese shares dropped amid investor concern the outlook for global economic growth will deteriorate. Russia’s ruble and Brazil’s real rebounded with commodities.

More than two shares retreated for each one that advanced on the MSCI Emerging Markets Index with Asian stocks leading declines. A gauge of Chinese equities listed in Hong Kong decreased for a third day as Lenovo Group Ltd. saw its biggest decline in two years. The ruble rallied after the biggest two-day drop in six months, the real advanced and South Korea’s won extended a three-day decline.

A measure of energy companies has been the biggest drag on the developing-nation equity gauge over the last three months as a lingering oil supply glut weighed on exporting countries and fueled speculation that commodity producers will default on their debt. Developing-nation companies need to repay $152 billion this year and more than $400 billion in the next two years at a time when revenues are under pressure from the global slowdown and higher U.S. interest rates damp investor appetite for emerging-market assets.

“The risks are linked to the Chinese slowdown and the inability of Chinese policy makers to stabilize the economy and capital outflows and also to the large debt overhang in the emerging world that becomes more difficult to sustain as flows remain negative,” said Maarten-Jan Bakkum, a senior strategist at NN Investment Partners in The Hague with about $206 billion under management. “These factors continue to be a big problem. They are keeping sentiment toward EM highly fragile.”

Stocks

The MSCI Emerging Markets Index dropped 1 percent to close at 721.7, extending this year’s loss to 9 percent. Seven of its 10 industry groups declined, led by technology and industrial stocks. The equity benchmark trades at 10.6 times the 12-month projected earnings of its members, about 29 percent cheaper than the valuation for advanced-nation shares.

Benchmarks in India, Malaysia and the Philippines each dropped at least 1.2 percent, while an index of Gulf shares retreated for a second day.

The Hong Kong-listed shares of PetroChina and Cnooc Ltd. dropped at least 4 percent, a third day of declines, as U.S. oil prices swung after their biggest two-day drop in almost seven years. The Hang Seng China Enterprises Index retreated 2.5 percent, while the Shanghai Composite Index declined 0.4 percent.

China’s central bank plans to loosen rules on when foreign investors can bring money in and out of the country, according to people with direct knowledge of the matter. The changes would apply to funds under the Qualified Foreign Institutional Investor scheme, said the people, who asked not to be identified as the plans have yet to be announced.

Brazil’s Ibovespa advanced 2.6 percent as a measure of industrial metals rose. Commodities, which account for about half of Brazil’s exports, rebounded on speculation that cuts in supply will boost prices, bolstering the currencies of exporters such as Canada and Russia as well as Brazil.

Currencies

The ruble climbed 3.7 percent as oil rebounded after the biggest two-day drop in New York in seven years. Brazil’s real led gains in Latin America, adding 2.4 percent as commodities rose.

South Korea’s won fell 1 percent to the lowest in more than five years. Trade Minister Joo Hyung Hwan said the downside risks to South Korea’s exports may increase as China’s economy and oil prices are unlikely to recover in the short term. North Korea said it will launch a long-range rocket between Feb. 8 and Feb. 25 to put a satellite in orbit, just weeks after a fourth nuclear test, which drew rebukes from the U.S., South Korea and Japan.

The offshore yuan fell 0.2 percent to 6.6124, reversing gains in the past three days. The onshore currency was little changed at 6.5764. A Bloomberg gauge of 20 developing-nation currencies gained 1.2 percent, after losing 1.5 percent in January.

The extra yield investors demand to own emerging-market debt rather than U.S. Treasuries narrowed five basis points to 472, according to JPMorgan Chase & Co. indexes.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE