Emerging Stocks, Currencies Retreat as Growth Concern Lingers

Updated on
  • Brazil downgraded to junk with negative outlook by Moody's
  • South Africa's rand leads gauge of 20 currencies lower

Emerging-market stocks slumped for a second day on lingering concern that China’s slowdown and the U.K.’s potential exit from the European Union may curb global economic growth. South Africa’s rand led developing-nation currencies lower.

Shares in Russia and Dubai slumped at least 1.4 percent, while the rand declined 2.3 percent, the most in six weeks. Brazilian assets tumbled after Moody’s Investors Service downgraded the country to junk with a negative outlook, saying credit metrics will probably worsen. China’s yuan fell for a fourth day as the central bank cut its daily fixing and a report suggested outflows persisted last month. 

Concern that Chinese policy makers won’t be able to stem a slowdown in an economy growing at the weakest pace in 25 years and volatility in oil prices have pushed the MSCI Emerging Markets Index to a 7.3 percent decline in 2016. Brent crude on Wednesday swung between a gain of 3.9 percent and a 2.7 percent decline. It is selling for around $34 a barrel, less than half its five-year average price. Federal Reserve Vice Chairman Stanley Fischer said in a speech Tuesday that he remained uncertain if this year’s financial market turmoil could affect growth and inflation in the U.S.

Fed ‘Disconnect’

“The Fed citing international concerns only underscores the disconnect between their internal expectations for interest-rate hikes and market expectations,” said Paul Christopher, chief international investment strategist at Wells Fargo Advisors. “There is also fear of Brexit and uncertainty around the U.S. presidential election, but China and oil prices remain the top concerns.”

Saudi Arabia’s Ali Al-Naimi said he believes high-cost producers should bear the burden of rebalancing markets, while Iranian Oil Minister Bijan Namdar Zanganeh dismissed a Saudi-Russia proposal to freeze output.

The MSCI Emerging Markets Index fell 1.1 percent to 736.53. The benchmark trades at 10.8 times the projected 12-month earnings of its members. That compares with a multiple of 14.8 for MSCI’s gauge of developed-nation stocks.

Brazil’s Ibovespa declined 1 percent. The drop pushed the equity benchmark’s two-day decline to 2.7 percent after the country lost its investment grade at Moody’s. The real pared losses after weakening as much as 0.3 percent. Moody’s cut the country’s rating to Ba2 from Baa3. The nation’s credit metrics have deteriorated “materially” in the past few months and are expected to continue to worsen over the next three years, according to Moody’s, which also cited the negative impact of political gridlock on the government’s efforts to close a budget deficit and undertake structural reforms.

Malaysia, India

Malaysia’s SapuraKencana Petroleum Berhad led a drop in energy companies, sliding 4.5 percent. Rosseti PJSC and Lukoil PJSC helped send Russia’s Micex Index down 1.4 percent as trading resumed after a holiday. Dubai’s DFM General Index fell 1.7 percent, the most since Feb. 11.

India’s S&P BSE Sensex lost 1.4 percent as investors awaited the government’s presentation of the railway budget and national spending plan next week to gauge their direction of policies to support the economy.

Kepco Plant Service & Engineering Co. slumped a record 21 percent in Seoul after a 61 percent drop in full-year earnings prompted rating downgrades by analysts.

The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong slid 1.3 percent following Tuesday’s 0.6 percent drop. PetroChina Co. fell 2.1 percent, halting a two-day advance. The Shanghai Composite Index rose 0.9 percent.

Currencies

A gauge of 20 developing-nation currencies retreated for a second day, sliding 0.1 percent. The ruble and Malaysia’s ringgit each weakened more than 0.5 percent against the dollar. Hungary’s forint slid 0.6 percent against the euro after a central bank official said the bank was considering lower rates.

The yuan fell 0.1 percent to 6.5346 a dollar, snapping a two-day gain, according to China Foreign Exchange Trade System prices. It has lost 0.3 percent in a four-day streak. The central bank cut the reference rate by 0.04 percent to 6.5302 following a 0.17 percent reduction on Tuesday.

The extra yield investors demand to own emerging market debt over U.S. Treasuries narrowed two basis points to 466, according to JPMorgan Chase & Co. indexes.

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