Emerging Stocks Fall to Lowest Since May Amid U.S. Rate Concern

Emerging-market stocks fell to a four-month low and currencies weakened on concern the U.S. is close to raising interest rates. Hong Kong shares fell after China uncovered almost $10 billion of trade fraud.

The Hang Seng China Enterprises Index of Chinese shares dropped 0.7 percent. Jindal Steel & Power Ltd. sank 7.7 percent in Mumbai after Credit Suisse Group AG cut its rating. The ruble weakened and AFK Sistema slid after a Moscow court kept billionaire Vladimir Evtushenkov under house arrest. The Micex Index declined 0.4 percent. The Ibovespa fell to a six-week low in Sao Paulo as Brazil’s jobless rate exceeded forecasts.

The MSCI Emerging Markets Index declined 1 percent to 1,024.73. The Bloomberg Dollar Spot Index rose to the highest level since June 2010 on bets the strengthening U.S. economy is pushing the Federal Reserve closer to raising interest rates. Some banks played roles in fake trade at the port of Qingdao, China’s currency regulator said today.

“The problems go beyond a simple reaction to the prospect of Fed tightening,” Jonathan Garner, Hong Kong-based head of Asia and emerging-market strategy at Morgan Stanley, said by phone. “There is declining relative return on equity, compared to developed markets.”

Data today showed that applications for unemployment benefits in the U.S. increased less than forecast last week as an improving economy prompted employers to retain staff.

A gauge tracking 20 developing-country currencies decreased 0.6 percent. The premium investors demand to own emerging-market debt over U.S. Treasuries widened seven basis points to 285 basis points, according to JPMorgan Chase & Co. indexes.

Capital Outflows

The dollar strengthened against all 16 major world currencies today except the Japanese yen. The Russian ruble lost 0.9 percent. The Turkish lira fell 1.1 percent after the nation’s central bank left interest rates on hold.

All 10 industry groups on the MSCI Emerging Markets Index fell, led by energy companies.

Sistema tumbled 6.9 percent in Moscow, extending this month’s retreat to 43 percent. Evtushenkov, Sistema’s chairman, will remain under house arrest and won’t be allowed to make telephone calls, the Moscow City Court judgment showed today.

The Micex retreated 0.4 percent. The Russian stock benchmark has fallen 4.5 percent this year and trades at 5 times estimated 12-month earnings, the cheapest in emerging markets.

Brazil Unemployment

The Ibovespa declined 1.5 percent. Brazil’s unemployment rate rose to 5 percent in August, the national bureau of statistics reported today. The average estimate of 19 economists surveyed by Bloomberg was 4.9 percent.

Jindal Steel & Power tumbled to the weakest level since March 2009. Credit Suisse cut the stock to underperform after India’s top court canceled 98 percent of coal mine permits given to companies in the past two decades. The S&P BSE Sensex lost 1 percent.

Shares on the MSCI Emerging Markets Index trade at 10.9 times projected 12-month earnings, compared with 14.8 times for the MSCI World Index. Today’s drop trimmed the emerging-nation measure’s 2014 advance to 2.2 percent, versus 2.5 percent for its developed counterpart.

The Hang Seng China Enterprises gauge slid for the fifth time in six days as BNP Paribas SA reduced its recommendation on the nation’s shares. Companies “faked, forged and illegally re-used” documents for exports and imports, Wu Ruilin, a deputy head of the State Administration of Foreign Exchange’s inspection department, said at a briefing in Beijing. Those involved in such fraud would be severely punished, Wu said.

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