Emerging-Market Assets Retreat as Global Stimulus Optimism Fades

Turkish Lira Tumbles on Inflation Data
  • Equities decline most in four weeks; lira leads currency drop
  • Ruble strengthens for second day as crude prices rebound

Emerging-market stocks fell the most in four weeks and currencies weakened amid deepening concern that central bank stimulus from Japan to Europe and the U.S. won’t be enough to support global growth.

The Borsa Istanbul 100 Index retreated 1.7 percent and Turkish bond yields rose as inflation quickened to 8.79 percent in July. Societe Generale SA’s Czech unit Komercni Banka AS slumped the most since 2011 after saying it was reviewing its dividend guidance. Equity gauges in India and South Korea dropped more than 1 percent. A measure of developing-nation exchange rates declined for a second day.

Emerging-market assets are falling from 2016 highs as central banks including Japan’s failed to convince investors that they’re doing enough to shore up the global economy. The 28 trillion yen ($277 billion) spending package unveiled by Japan on Tuesday failed to ignite optimism the government could revive the economy.

“If there are people expecting a big new bazooka of monetary stimulus from the Bank of Japan or from the ECB, they’re likely to be disappointed, at least in the next two months,” Paul Christopher, global markets strategist for Wells Fargo Investment Institute, said by phone. “Growth is still the main concern. It’s going to be difficult for central banks to use stimulus to prop up asset prices.”

Stocks

The MSCI Emerging Markets Index fell 1 percent to 868.18. The gauge has gained 9.3 percent this year and trades at 12.1 times the 12-month projected earnings of its members, compared with a multiple of 16.1 for the MSCI World Index, which has risen 2.7 percent in 2016.

All 10 industry gauges in the emerging-market index dropped Wednesday. The Borsa Istanbul declined the most since July 21 as Turkish inflation exceeded the median estimate of analysts by more than 60 basis points.

Stocks in the Czech Republic slid 2.1 percent. Komercni tumbled 8.3 percent. The bank’s board is reviewing previously-communicated guidance on dividend distribution due to a “significant increase” in capital requirements, according to a statement.

South Korea’s Kospi Index lost 1.2 percent. The S&P BSE Sensex Index slid 1 percent. The Hang Seng China Enterprises Index declined 1.7 percent.

Currencies

The MSCI Emerging Markets Currency Index weakened 0.3 percent, dropping for a second day from the highest level in more than a year. The Turkish lira and Malaysian ringgit led declines, each weakening at least 0.7 percent.

The ruble rose for a second day, strengthening 0.6 percent against the dollar as oil, Russia’s biggest export, ended a five-day slump. Brazil’s real rose 0.6 percent to a one-month high. Poland’s climbed 1 percent against the euro after the government’s proposals to convert foreign-currency mortgages were less severe than investors expected

For more on Poland’s Swiss loan conversion plan, click here.

Turkey’s 10-year government bonds dropped a third day, pushing the yield up 12 basis points to 9.87 percent, the highest in more than a week. Similar-maturity Russian rates also increased, climbing five basis points to 8.54 percent, the most since July 28.

The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed one basis point to 361, according to JPMorgan Chase & Co. indexes.

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