Emerging Stocks Fall From One-Year High as Crude Prices Retreat

  • Rand, ringgit decline versus dollar; zloty, leu strengthen
  • Polish stocks rally most in world on Swiss-franc mortgage plan

Emerging-market stocks retreated from their highest level in a year as oil’s descent into a bear market weighed on energy producers and investors assessed the outlook for the global economy.

Shares in Russia and the oil-exporting Gulf region led losses as oil sold for less than $40 a barrel in New York. Polish stocks rallied the most worldwide, after proposed legislation spared banks the immediate cost of converting $36 billion of Swiss-franc home loans into zloty. Poland’s currency was also the best performer among peers, while the South Africa’s rand was the biggest decliner.

Equities retreated as investors turned their focus onto the global economy after speculation that central banks will boost stimulus and the U.S. will keep interest rates low amid lackluster growth sent valuations to the highest level since May 2015. Japan’s plan for extra government spending to boost the world’s third-largest economy underwhelmed money managers.

“Markets are likely to be cautious going into August, given volatility is generally lower, solid summer performance thus far and the wariness of any surprises around the corner,” said Simon Quijano-Evans, a strategist at Legal & General Group Plc in London. “The growth and oil price concerns appear to be the dominating factors today.”

Currencies in emerging markets tend to underperform this month, falling in seven of the past 10 Augusts, as some investors cut holdings of assets considered to be riskier in case they’re caught out while on vacation. Liquidity in foreign-exchange trading dropped a majority of the time, according to Bank of America Corp. data.

Stocks

The MSCI Emerging Markets Index declined 0.7 percent to 876.77, sliding from its highest level since August 2015. Nine of the 10 industry groups fell with telecommunications shares leading losses. Companies in the broader index are trading at 12.3 times their 12-month estimated earnings, compared with 16.2 for developed markets.

Russia’s Micex Index fell 1.8 percent as Lukoil PJSC lost 3.6 percent. Stocks in Abu Dhabi, Dubai and Saudi Arabia fell at least 1.2 percent. Brazil’s Ibovespa Index slumped 1.1 percent.

“Oil prices are once again the source of major pressure on emerging markets,” said Rakpong Chaisuparakul, an investment strategist at KGI Securities (Thailand) Pcl in Bangkok. “Most investors are also worried about high valuations of some stocks after their recent rallies. Some may take this opportunity to take profit.”

Poland Rally

Polish banks PKO Bank Polski SA and Bank Zachodni WBK SA led gains in Warsaw, sending the WIG20 Index up 2.4 percent. President Andrzej Duda’s proposals envisage gradual conversion of franc-denominated home loans into zloty through regulatory changes, central bank Governor Adam Glapinski told reporters on Tuesday.

Chinese stocks rose the most in a week, with developers helping pace the advance in thin trading. A typhoon shuttered Hong Kong’s markets for the day.

Bharat Financial Inclusion Ltd., the Indian microfinance company formerly known as SKS Microfinance Ltd., slumped 9.7 percent, the most since September in Mumbai stock trading after financial-crimes investigators arrested its president.

Currencies

The MSCI Emerging Markets Currency Index was little changed, trading around its highest closing level since last July.

Poland’s zloty climbed 0.8 percent against the euro and 1.3 percent versus the dollar, the best performer among 31 major currencies after the Japanese yen.

Russia’s ruble advanced 0.4 percent versus the dollar as companies sold dollars to prepare for dividend payments. Brazil’s real climbed 0.2 percent.

The rand and the Malaysian ringgit both weakened more than 0.3 percent.

The premium investors demand to own emerging-market bonds rather than U.S. Treasuries narrowed four basis points to 359, according to JPMorgan Chase & Co. indexes.

Romanian bonds gained, sending the 10-year yield down seven basis points to 3.03 percent. The yield on similar-maturity Turkish bonds increased three basis points to 9.75 percent.

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