Emerging-Market Stocks Drop With Currencies as Fed Rally Fades

Updated on
  • Magnit leads drop in Russia as retailer’s sales growth slows
  • Brazil’s real ends six-day advance as commodity prices slip

Emerging-market stocks fell after reaching the highest valuations in a year and currencies weakened as investors speculated that gains driven by dovish signals from the Federal Reserve were overdone.

Russian stocks retreated the most this month as the country’s biggest retailer reported a slowdown in sales growth. Equity gauges across emerging Europe slid and South African shares dropped to the lowest level in more than two weeks. Markets in China, Hong Kong and Taiwan were closed for holidays. The ruble slipped from the highest level since November after Bank of America Corp. recommended selling the currency before an interest-rate decision on Friday. The real ended a six-day gain and the Ibovespa retreated as lower commodity prices dimmed the outlook for Brazilian exporters.

Emerging markets rallied in the past week as lower-than-forecast U.S. jobs growth curbed bets for a Fed interest-rate increase any time soon, while gains in oil and signs that China’s economy is on the mend underpinned demand for riskier assets. The benchmark index’s 14-day relative-strength index rose above 70 on Wednesday, a level that sometimes precedes a decline. The currency gauge was also close to that threshold.

“There is a feeling in the market that the rally went too far,” Guillaume Tresca, a senior emerging market-strategist at Credit Agricole CIB in Paris, who recommends selling the rand. “This kind of consolidation should continue in the next two days.”

Stocks

The MSCI Emerging Markets Index slid 0.6 percent to 837.03, ending a 4.4 percent gain over the previous five days. The measure has advanced 5.4 percent this year and trades at 12.1 times its projected 12-month earnings. That’s a 25 percent discount to the valuation for the MSCI World Index of developed-nation equities.

Russia’s Micex Index fell 0.9 percent, the most since May 31. Magnit PJSC dropped 4 percent after saying sales growth decelerated to 9.6 percent in May, from 17 percent in the first quarter and almost 25 percent last year.

Raw-material stocks including iron-ore producer Vale SA led a 1 percent decline in the Ibovespa. The Bloomberg Commodity Index fell 0.7 percent, retreating for the first time in eight days. The FTSE/JSE Africa All Share Index in Johannesburg retreated 1.1 percent to the lowest level since May 24.

“Equity prices are at the level of valuations that are exposed to possible profit taking,” Isara Ordeedolchest, an investment strategist at SCB Securities Co. said from Bangkok.

Ruble, Real

MSCI Inc. is reviewing whether to add mainland-traded Chinese stocks to its global indexes and the results will be unveiled on June 14.

The MSCI Emerging Markets Currency Index slipped 0.1 percent.

The ruble weakened for the first time in six days, falling 1.1 percent to 64.30 per dollar, as Bank of America strategists forecast a depreciation to 65 per dollar after June. The Bank of Russia is projected to cut its benchmark interest rate to 10.5 percent on Friday.

Brazil’s real dropped 1 percent, the most among developing-nation currencies. South Africa’s rand fell 0.4 percent. Mexico’s peso retreated 0.8 percent.

The premium investors demand to own emerging-market debt over U.S. Treasuries widened four basis points to 387, according to JPMorgan Chase & Co. indexes.

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