Emerging-Market Stocks Fall as Fed Concern Outweighs Oil Rebound

What Fed 'Policy Mistake' Would Impact Emerging Markets?
  • Turkish equities, government bonds slump on political turmoil
  • Ruble strengthens amid signs global oil glut may be easing

Emerging-market stocks fell for a fifth day as concern that the Federal Reserve may raise U.S. interest rates as soon as next month outweighed rallying oil prices. Turkish bonds slid as a political standoff deepened.

The MSCI Emerging Markets Index posted its longest streak of declines in 2016 after Atlanta Fed chief Dennis Lockhart and San Francisco’s John Williams both signaled this week that the U.S. economy could warrant a rate increase when policy makers meet June 14-15. Futures traders assign only a 10 percent probability for such a move. The dollar strengthened for a third day, reflecting investor concern that higher rates will spur outflows from developing countries.

“A small change in emphasis can have a magnifying effect on markets,” said Julian Mayo, who helps oversee $2 billion as co-chief investment officer at Charlemagne Capital Ltd. in London. “There are some commentators suggesting that people are becoming more hawkish and that’s being reflected in an out-sized selloff in markets.”

Turkish bond yields jumped to the highest in almost a month as Prime Minister Ahmet Davutoglu was said to be preparing to quit after losing a power struggle with President Recep Tayyip Erdogan. Philippine equities retreated for the ninth time in 10 days before Monday’s presidential elections. Chinese stocks in Hong Kong completed their steepest four-day slide in three months on concern the world’s second-biggest economy is faltering. Russia’s ruble strengthened as Brent crude sold for more than $45 a barrel.

Bonds

Turkey’s 10-year sovereign bonds fell, sending the yield up 18 basis points to 9.81 percent. That took the increase this week to 57 basis points. A person familiar with the matter said Prime Minister Ahmet Davutoglu plans to step down this month after losing a power struggle with President Recep Tayyip Erdogan.

The premium investors demand to own emerging-market debt over U.S. treasuries widened three basis points to 405, according to JPMorgan Chase & Co. indexes.

Stocks Slump

The MSCI developing-nation equities index dropped 0.5 percent to 809.46. All 10 industry groups declined, led by telecommunications and raw-material stocks. The measure trades at 11.4 times the projected earnings of its members, a 27 percent discount to advanced-nation stocks. 

The Borsa Istanbul 100 declined 0.9 percent to a two-month low. Turkish lender Turkiye Garanti Bankasi AS led the benchmark lower, tumbling 4.2 percent

The Ibovespa declined 1.7 percent in Sao Paulo as Brazilian lenders including Banco Bradesco SA and Itau Unibanco Holding SA retreated. The Micex Index dropped 1 percent in Moscow.

The benchmark gauge in Philippines slid 1.2 percent to the lowest level since March 9. The nation is heading to a presidential election on May 9 that’s likely to shape geopolitics in the region and determine whether one of Asia’s oldest democracies can sustain its economic turnaround.

In Hong Kong, the Hang Seng China Enterprises Index fell 0.8 percent. New World Development Co. led developers lower after Goldman Sachs Group Inc. downgraded Hong Kong property stocks, predicting a 20 percent drop in house prices. A private index of China’s services industry fell to 51.8 in April from 52.2 in March, Caixin Media and Markit Economics said.

Currencies Weaken

The MSCI Emerging Markets Currency Index fell 0.1 percent it its fourth day of declines.

Poland’s zloty weakened 0.2 percent against the euro as the government asked the Constitutional Tribunal to refrain from making any comments before Moody’s Investors Services reviews its rating for the nation on May 13. An erosion in the independence of institutions was one of the factors that spurred S&P Global Ratings to cut Poland’s rating in January.

Russia’s ruble strengthened 1 percent, the most in a week, as data showed a worldwide glut in crude may be abating, spurring demand for assets in the world’s biggest energy-exporting country.

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