Emerging-Market Stocks Decline on China Outlook as Ruble WeakensNatasha Doff and Ian Sayson
Emerging-market stocks headed for an eight-month low as Chinese shares tumbled the most since 2009 amid concern funding conditions are tightening. The ruble fell for a second day.
Industrial & Commercial Bank of China Ltd. and PetroChina Co. fell at least 8 percent. The yuan slid to a four-month low as policy makers prohibited riskier bonds from being used as collateral for some short-term loans. The ruble weakened for a second day. Ten-year Russian bond yields rose 30 basis points to 12.97 percent. Wagers for Russian interest-rate increases reached the highest since 2008. The Ibovespa dropped as Brazilian raw-material producers declined.
The MSCI Emerging Markets Index declined 1.2 percent to 965.41. The gauge has lost 12 percent from this year’s high reached in September as the Federal Reserve ended bond buying and speculation grew that interest rates will rise next year. The Bloomberg GCC 200 Index tracking Persian Gulf stocks dropped to an 11-month low amid concern oil’s 42 percent slump since June will erode export revenue.
“The stronger U.S. dollar and lower oil remain a challenge for emerging markets,” Martial Godet, the head of emerging-market equity and derivatives strategy at BNP Paribas SA in Paris, wrote in an e-mail. “What is new is the speed of their respective decline, which has been reasonably well absorbed because Asia was holding well. Such days with negative news about liquidity are more difficult to handle as there is hardly any safe haven.”
China’s clearing agency for exchanges said yesterday it won’t allow bonds rated below AAA or sold by issuers graded lower than AA to be used as collateral for short-term loans obtained through repurchase agreements. The new rules are aimed at reducing leverage and weaning local governments away from opaque financing vehicles.
The Ibovespa fell 0.2 percent. Steelmaker Gerdau SA fell 5.1 percent to a nine-year low. Petroleo Brasileiro SA, the state-controlled oil producer, slid 1.2 percent to the lowest since December 2004.
The premium investors demand to hold emerging-market debt over U.S. Treasuries increased seven basis points to 334 basis points, according to JPMorgan Chase & Co. indexes. A gauge tracking 20 emerging-market currencies versus the dollar gained 0.1 percent, ending a 10-day rout that dragged the measure down to the lowest level in more than five years. The yuan slipped 0.3 percent.
The Shanghai Composite Index, the best-performing national equity benchmark in the past month, snapped the biggest five-day rally since 2008, sliding 5.4 percent. The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong slumped 4.6 percent, its biggest retreat since November 2011.
“After sharp advances, Chinese stocks are bound for a correction,” said Jonathan Ravelas, chief market strategist at Manila-based BDO Unibank Inc. “Liquidity could become an issue in the short term as companies adjust to these new tighter repo rules.”
The Chinese plunge hurt sentiment across Asia with benchmark indexes in India, Thailand and Vietnam dropping at least 1 percent.
The Bank of Russia will raise interest rates this week by 100 to 400 basis points in an effort to stem the ruble’s decline, 50 of the 77 traders polled by brokerage Tradition projected. Policy makers failed to arrest a 39 percent slump in the currency this year with currency interventions and a verbal warning to speculators from President Vladimir Putin last week.
The yield on 10-year government bonds extended its 11-day increase to 278 basis points. The ruble lost 0.6 percent to 54.0490 per dollar.
Sabic, one of the world’s largest petrochemicals producers, slid 4 percent as the Tadawul All Share Index fell for a third day, paring its advance this year to 1.1 percent. The Dubai Financial Market General Index extended its six-day loss to 13 percent.
The MSCI developing-nation gauge has lost 3.7 percent this year and trades at 11 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index of developed markets has gained 3.7 percent this year and is valued at a multiple of 15.5.