Emerging Stocks Decline for a Fifth Day as Ruble WeakensNatasha Doff and Choong En Han
Developing-nation stocks extended their decline to a fifth day amid speculation Russia may adopt capital controls and on concern growing clashes in Ukraine will lead to more European Union sanctions. The Ibovespa fell to a three-month low.
The ruble dropped 0.2 percent versus a target basket of dollars and euros, a day after briefly crossing the level at which the central bank intervenes to halt declines. The Brazilian real depreciated 1.4 percent to the weakest since December 2008 and South Korea’s won slumped to a six-month low. Protests continued in Hong Kong with markets in the city and mainland China shut for holidays.
The MSCI Emerging Markets Index lost 0.8 percent to 996.86 in New York, a five-month low, after sliding 7.6 percent in September. The ruble slipped amid speculation the country is considering imposing limits on cross-border flows, while a person familiar with German government policy said Russia risks an escalation of European Union sanctions if separatists make further military gains in Ukraine.
“Concern that the Russian central bank is considering capital controls” is weighing on sentiment, Anders Svendsen, an economist at Nordea Bank Denmark A/S in Copenhagen, said by phone. “As long as the conflict with Ukraine continues, we are going to see continued pressure on the ruble.”
The developing-nation stock measure’s 4.3 percent drop in the third quarter erased gains for the year. The MSCI index trades at 10.7 times 12-month estimated earnings, data compiled by Bloomberg show. The MSCI World Index has risen 1.1 percent year-to-date and has a multiple of 14.6.
The ruble, the world’s worst-performing currency last quarter, briefly dropped beyond 44.40 yesterday after two officials with direct knowledge of the discussions said the central bank is weighing temporary capital controls if outflows intensify. The central bank yesterday denied it’s considering such measures.
If separatists took the Donetsk airport or the city of Mariupol in an effort to create a land corridor in eastern Ukraine, the EU might impose additional sanctions, according to the official, who asked not to be named because he isn’t authorized to discuss the matter publicly. Russia has denied any involvement. The country’s economy will expand 0.5 percent next year, the International Monetary Fund said today, cutting its previous growth forecast in half.
All 10 industry groups in the MSCI Emerging Markets Index fell, led by industrial and material stocks. Samsung Heavy Industries Co., the world’s third-largest shipbuilder, tumbled 5.9 percent in Seoul, the most on the gauge.
The Ibovespa sank 2.3 percent as a voter poll showing President Dilma Rousseff’s victory in this month’s election curbed bets that a new administration would reduce intervention in the economy and act to bolster growth. Petroleo Brasileiro SA, the state-controlled oil company, fell 5.5 percent.
Turkey’s lira weakened to the lowest level in eight months while the won dropped 0.7 percent amid speculation South Korea will step up efforts to weaken the currency as the country’s biggest exporters struggle.
“As long as the dollar continues to strengthen, the outflows from emerging markets will continue,” Ang Kok Heng, chief investment officer of Phillip Capital Management Sdn., which manages $428 million, said by phone from Kuala Lumpur.
Hong Kong’s pro-democracy protests grew for a sixth day as student leaders jeered the city’s top official at a ceremony to mark China’s National Day. The movement, kick-started after students stormed the premise of government headquarters on Sept. 26, grew after police used tear gas over the weekend to disperse crowds. Hong Kong markets will resume trading on Oct. 3 while mainland markets will be shut until Oct. 7 for the holidays.
The premium investors demand to own developing-country debt over U.S. Treasuries climbed nine basis points to 306, according to JPMorgan Chase & Co. indexes.