• Polls favor Britain’s ‘Leave’ campaign before June 23 vote
  • Traders demand two-month high premium to hold sovereign debt

Emerging-market stocks and currencies posted their biggest four-day declines since January on growing concern that the U.K. will leave the European Union. Investors turned the most bearish in two months on sovereign debt.

Equity gauges from Brazil to South Africa dropped at least 2 percent as investors sold riskier assets after polls favored Britain’s “Leave” campaign before the June 23 referendum. The ruble weakened for a third day as Brent crude slid. Poland’s bond yields jumped to the highest level in almost 12 months. Chinese shares rebounded and Pakistan’s main gauge rose to a record amid speculation the nations’ stocks will be added to the MSCI Emerging Markets Index.

A gauge of projected price swings in developing-nation equities has surged 35 percent in the past three days as concern that Britain will leave the EU compounded a risk-off sentiment spurred by a Fed meeting this week. While traders rule out an immediate increase in U.S. interest rates, they remain on edge over the impact of policy tightening later this year and the market fallout of a Brexit vote.

“Uncertainty is the problem,” said Peter Dixon, global equities economist at Commerzbank AG in London. “Markets were priced for a ‘Remain’ vote and it now appears as though it’s not a clear-cut decision. As a consequence, they have to adjust now and the Fed concern has moved to the background temporarily.”

Stocks

The MSCI Emerging Markets Index fell 0.8 percent to 802.97, taking its four-day decline to 4.7 percent. The gauge trades at a valuation discount of 26 percent relative to developed markets, one percentage point wider than a week ago. Nine out of 10 industry groups declined, with technology stocks the lone gainer.

“It’s a trifecta of uncertainty with Brexit, the FOMC meeting later this week, and the slump in liquidity typical from June to August, which would exaggerate market movements,” said Geoffrey Ng, who oversees about $238 million as a director at Fortress Capital Asset Management Sdn. in Kuala Lumpur. “With markets on a yo-yo, we are only taking trades that are within a range and are short term.”

The dollar-denominated RTS Index of Russian stocks slid 2.7 percent. The FTSE/JSE Africa All Share Index in Johannesburg retreated 2.1 percent, the most in four months. The WIG 20 Index declined 1 percent in Warsaw. Brazil’s Ibovespa declined 2 percent.

Pakistan Rally

The Karachi Stock Exchange KSE100 Index surged 1.5 percent to a record before MSCI’s announcement that could upgrade the nation to emerging-market status. EFG Hermes said last month that an upgrade could bring around $475 million of inflows in to Pakistani equities by mid-2017. The Shanghai Composite Index gained 0.3 percent, while the Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong dropped 0.4 percent. 

The MSCI Emerging Markets Currency Index fell 0.4 percent and has retreated 1.5 percent in four days, its longest losing streak since May 9. Russia’s ruble weakened 0.8 percent as Brent crude sold for less than $50 a barrel. South Africa’s rand declined 0.9 percent.

The premium investors demand to own emerging-market debt rather than U.S. Treasuries widened four basis points to 404, the widest in two months, according to JPMorgan Chase & Co. Index. Polish government bonds retreated, sending 10-year yields 13 basis points higher to 3.31 percent. The yields on similar-maturity Russian notes jumped 13 basis points to 8.74 percent.

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