Emerging Markets Slide as BOJ, ECB Signal Stimulus Bets Overdone

  • Turkish stocks pare worst weekly decline since November 2008
  • Currencies head for loss as Fed rate wagers brought forward

Emerging-market stocks and currencies fell as traders scaled back estimates on how quickly central banks around the world will expand stimulus.

Polish stocks dropped for the first time in seven days. Russia’s ruble slid on signs policy makers want a weaker currency. South Africa’s rand slumped after its reserve bank kept benchmark rates unchanged. Brazil’s real swung between losses and gains as confidence over the new government defeated the central bank’s measures to weaken the currency. Malaysia’s ringgit dropped as authorities moved to seize assets linked to a troubled state investment fund. Indonesian bonds declined after policy makers refrained from cutting interest rates on Thursday. Turkish stocks pared the worst weekly decline since 2008.

Investors are moderating their stimulus forecasts after the Bank of Japan ruled out directly financing government debt and the European Central Bank held back monetary expansion by saying it will act when it has a clearer picture of the impact of Britain’s vote to leave the European Union. A majority of futures traders now expect the Federal Reserve to raise interest rates as early as March 2017, compared with their earlier prediction of January 2018.

“Further stimulus is perhaps not going to be forthcoming as quickly as markets had expected,” said Tony Hann, the London-based head of equities at Blackfriars Asset Management. “Given the strong rally over the last couple of weeks, and the fact it is a Friday could be enough to spur some profit taking.”

The MSCI Emerging Markets Index slipped 0.2 percent to 869.30, reducing its weekly gain to 0.2 percent. Eight out of 10 industry groups on the gauge declined Friday, led by telecommunications and health care companies. The developing-nation currencies measure fell 0.2 percent.

Stocks

The WIG 20 Index dropped 0.6 percent in Warsaw, following a 3.4 percent rally in the past six days. Poland’s ruling party pushed ahead with its overhaul of the country’s Constitutional Tribunal, gaining approval from both houses of parliament for legislation that fails to dispel doubts over whether the nation is backsliding on democratic standards.

The Borsa Istanbul 100 Index climbed 0.2 percent on Friday after trading as much as 1.6 percent lower as President Recep Tayyip Erdogan hinted that the state of emergency in the country may have to be extended beyond the original three months approved by Parliament. The benchmark gauge slumped 13 percent this week, the most since November 2008.

Russia’s RTS Index fell 1.2 percent, extending its retreat this week to 2.9 percent.

Currencies

The ruble weakened 0.8 percent against the dollar. President Vladimir Putin drew attention to the currency’s strength, prompting speculation the central bank or finance ministry will seek to influence the exchange rate. The real gained 0.4 percent.

The rand weakened 0.5 percent after the South African central bank left interest rates unchanged at 7 percent in response to cuts in the country’s growth forecasts.

Malaysia’s ringgit fell 0.4 percent. More than $3.5 billion was misappropriated from 1Malaysia Development Bhd., and about $1 billion was laundered through America’s banking system, the U.S. Justice Department said in filings Wednesday.

Bonds

Indonesia’s 10-year sovereign bonds fell for a second day, sending yields up three basis points to 7.06 percent. Central bank Governor Agus Martowardojo and his board kept the key reference rate at 6.5 percent on Thursday. Sixteen of 26 economists surveyed by Bloomberg had predicted a quarter point cut.

The premium investors demand to own emerging-market bonds rather than U.S. Treasuries narrowed one basis point to 354, according to JPMorgan Chase & Co. indexes.

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