Emerging Stocks End Eight-Day Rally on Fed Rate Outlook to China

Emerging-market stocks slid from a three-year high after Chinese manufacturing data trailed estimates and the Federal Reserve raised the possibility of increasing interest rates sooner than anticipated.

Sinopec Shanghai Petrochemical Co. fell a second day while a gauge of Hong Kong-listed Chinese shares declined 1 percent. South Korea’s Kospi index dropped the most since March, led by Samsung Electronics Co., the world’s biggest smartphone maker. The Ibovespa rose as Banco Bradesco SA led gains in Brazilian lenders. The Micex Index posted its longest streak of increases in nine years on speculation that tension will ease in Ukraine.

The MSCI Emerging Markets Index lost 0.3 percent to 1,081.93 after closing at the highest level since Aug. 2011 yesterday. The preliminary China Purchasing Managers’ Index declined to a three-month low. The Fed came closer to a deal in July on how to exit monetary stimulus, minutes from the meeting showed yesterday. Norway’s sovereign wealth fund said it was slowing its expansion into developing countries.

“The hope that we all had that China was beginning to stabilize has become somewhat dented today,” Lars Christensen, the chief emerging-market analyst at Danske Bank A/S in Copenhagen, said by phone. The Fed minutes “are not helping sentiment,” he said.

Seven out of 10 industry groups in the emerging-market measure declined, led by technology companies. Samsung was the biggest drag on the gauge with a 2.1 percent drop. The Kospi index slid 1.4 percent.

Ukraine Casualties

Ukraine’s UX Index fell for the first time in three days while the country’s government bonds due in July 2017 dropped. The hryvnia slid 0.4 percent against the dollar, extending the world’s biggest retreat this month to 8.1 percent.

Thirty-four civilians were killed and 29 hurt in and around Donetsk, one of the main separatist strongholds, over 24 hours, the regional administration said yesterday. The Micex rose 1 percent, taking its advance over 10 days to 9.6 percent, as investors speculate a meeting next week between President Vladimir Putin and his Ukrainian counterpart will reduce tension.

OAO Mechel, Russia’s biggest supplier of coking coal, surged 5.5 percent, the largest gain in the benchmark gauge. OAO Sberbank, the nation’s biggest lender, added 2.4 percent to the highest level since July 25.

Norway Fund

India’s rupee declined 0.1 percent versus the dollar while the South African rand gained 0.3 percent. A Bloomberg gauge tracking 20 emerging-market currencies rose 0.2 percent, ending a four-day decline.

The Ibovespa advanced 0.2 percent as Bradesco gained 1.3 percent. The Jarkarta Composite Index rose 0.3 percent. Indonesia’s constitutional court rejected allegations of fraud in last month’s national ballot, upholding Joko Widodo’s election as president.

Today’s decline trimmed the 2014 gain for the MSCI Emerging Markets Index to 7.9 percent, beating the 4.9 percent increase in the MSCI World Index. The rally pushed developing-country valuations to 11.3 times projected 12-month earnings, compared with a multiple of 15 for the MSCI World.

Norway’s $880 billion wealth fund is scaling back a two-year mission to tap into emerging markets, Yngve Slyngstad, the fund’s chief executive officer, said yesterday in an interview after a press conference in Oslo.

The Hang Seng China Enterprises Index fell 1 percent to the lowest since Aug. 8. The Shanghai Composite Index lost 0.4 percent. China’s Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 50.3 in August, missing the 51.5 median estimate of analysts. Numbers above 50 indicate expansion.

“China is still balancing between achieving its growth target and reining in excessive credit growth,” Manpreet Singh Gill, a senior investment strategist at Standard Chartered Bank, said in Singapore. “That is exactly what the data is showing.”

The premium investors demand to own developing-country debt over U.S. Treasuries increased one basis point to 279, according to JPMorgan Chase & Co. indexes.

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