Emerging Stocks Decline on Fed Rate Outlook, China Home Prices

Emerging-market stocks fell as the Federal Reserve’s interest-rate target increase spurred concern that investors will pull money out of developing nations’ assets and a decline in Chinese home prices damped the outlook for growth in the world’s second-largest economy.

The MSCI Emerging Markets Index slipped 0.6 percent to 1,056.37. The Borsa Istanbul 100 Index sank 1.9 percent. Russia’s ruble weakened for a second day. China Construction Bank Corp. lost 1.4 percent, pacing a 0.9 percent retreat in Hong Kong-traded Chinese shares. Brazil’s real fell to a seven-month low and the Ibovespa dropped amid concern the weaker currency will fuel inflation.

Federal Reserve policy makers yesterday raised by 25 basis points their median estimate for where the federal funds rate will be by the end of 2015, while keeping a pledge to keep rates low for a “considerable time” after their bond purchase program has ended. Data today showed Chinese home prices decreased in 68 of 70 cities in August from July.

“Investors will remain cautious on China and will wait for more clarity on the extent of the slowdown of the Chinese economy and a potential new round of stimulus,” Martial Godet, the head of emerging-market equity and derivatives strategy at BNP Paribas SA in Paris, said by e-mail. “The rebound of long-term interest rates in the U.S. is going to weigh down on EM stocks and currencies.”

The developing-nation stock measure has fallen in 11 of this month’s 14 trading days, trimming its advance this year to 5.4 percent. The gauge trades at 11.2 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has increased 4.9 percent and is valued at 15.1 times.

U.S. Rates

U.S. policy makers tapered monthly bond buying to $15 billion in their seventh consecutive $10 billion cut, staying on course to end the program in October. Fed Chair Janet Yellen, at a press conference, declined to specify how quickly rates might rise after purchases end.

Turkey’s equity gauge ended a three-day increase as Turkiye Garanti Bankasi AS led banks lower. Goldman Sachs Group Inc. cut its 2014 economic growth forecast for the country to 3 percent from 3.5 percent. Hungary’s benchmark BUX Index slipped 0.1 percent.

Eight of 10 industry groups in the MSCI emerging-markets index fell, led by consumer-discretionary shares. Hyundai Motor Co. tumbled 9.2 percent on concern it paid too much for a site in Seoul. South Korea’s won slid to a five-month low versus the dollar. Russia’s ruble lost 0.2 percent.

Russia Recession

A weaker ruble has created some “grounds for optimism” in Russia and the country won’t slip into recession this year, according to Pictet & Cie. Group SCA, Geneva’s biggest bank and asset manager. The Micex Index rose 0.3 percent.

AFK Sistema extended a decline, tumbling 5 percent following a 37 percent plunge yesterday after Russia put majority owner billionaire Vladimir Evtushenkov under house arrest on suspicion of money laundering.

Five months of deadly fighting in Ukraine is curbing eastern Europe’s growth prospects, the European Bank for Reconstruction and Development said.

The Ibovespa retreated 1.2 percent. Estacio Participacoes SA led a drop in Brazilian consumer stocks, declining 4.8 percent amid speculation that the country’s weakening currency will stoke inflation. The real lost 0.3 percent, pushing its decline this quarter to 6.4 percent.

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong retreated for the sixth time in seven days after posting its biggest gain in two weeks yesterday.

Vietnam, India

Home sales in China slumped 11 percent in the first eight months of this year amid an economic slowdown after banks tightened property lending to curb default risks.

The Shanghai Composite Index rose 0.4 percent as a drop in money-market rates eased concerns of a cash crunch before new share offerings and national holidays.

Vietnam’s VN Index declined 1.6 percent to the lowest level since Aug. 21. Indonesia’s rupiah fell beyond 12,000 per dollar for the first time since June.

India’s S&P BSE Sensex index rose 1.8 percent, the most since June 2, on optimism trade ties with China will attract foreign inflows and revive economic growth.

The premium investors demand to own developing-country debt over U.S. Treasuries was unchanged at 280 basis points, according to JPMorgan Chase & Co. indexes.

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