Emerging-Market Currencies Drop After China Cuts Interest RatesNatasha Doff and Elena Popina
Emerging-market currencies fell for a third day after a Chinese interest-rate cut pushed the yuan to a 2012 low and the ruble and Brazilian real led declines in developing Europe and Latin America.
The yuan slid to as low as 6.274 against the dollar after rates were reduced for the second time in three months. The ruble dropped 1.7 percent. The real weakened 1.9 percent. South Africa’s rand fell 1 percent after weaker-than-predicted manufacturing data followed a report last week showing a trade deficit. Developing-nation equities retreated for a second day.
A gauge tracking 20 emerging-market currencies decreased 0.6 percent. The move to join global counterparts with more easing reflects the People’s Bank of China’s concern over an economy pressured by a property slump. Russia’s ruble is under pressure as companies prepare for the biggest month of external-debt repayments since December.
“Growth has been disappointing in China relative to what the government would like to see, so they are cutting interest rates to increase economic growth, which tends to push yuan down,” Bruce McCain, who helps oversee more than $25 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said by phone.
The ruble, which had its best month on record in February, declined to 62.65 per dollar. About $19.7 billion of external debt for local borrowers is coming due in March, making it the most intense month for repayments since December and until at least October, according to Bank of Russia data.
South Africa’s currency depreciated to 11.7771 against the dollar. A purchasing managers index fell to 47.6 in February versus an estimate of 51.5. Levels below 50 signal a contraction. January’s trade gap of 24.2 billion rand was the widest since at least 2010, and compared with a median estimate of 7.8 billion rand.
While Russia’s currency fell, the dollar-denominated RTS Index extended the world’s best equity rally of 2015, advancing 0.8 percent. Investors added money to U.S. exchange-traded funds that buy emerging-market stocks and bonds last month for the first time since November, led by flows into Russia.
The murder of Russian opposition leader Boris Nemtsov on Friday sparked international outrage, but won’t dissuade investors since sanctions over Ukraine and the direction of oil are the main drivers, according to Chris Weafer, a senior partner at Moscow-based consulting firm Macro Advisory. Brent crude lost 2.6 percent in London on Monday.
The MSCI Emerging Markets Index slid 0.2 percent. Brazil’s Ibovespa declined 1.1 percent as Brewer Ambev SA led declines in consumer stocks.
The Shanghai Composite Index rose 0.8 percent to a one-month high. Most economists predict Premier Li Keqiang will announce a 2015 growth target of around 7 percent, down from 7.5 percent last year, when the National People’s Congress convenes its annual meeting this week.
Eight out of 10 industry groups in the developing-nation index fell, led by consumer staples stocks. Samsung Electronics Co. surged 4.9 percent to an eight-month high after its Galaxy S6 smartphones won early praise from reviewers. That helped boost the Kospi index in Seoul to the highest level since Sept. 30.
ITC Ltd., a tobacco company, sank 5 percent in Mumbai, extending an 8.2 percent slump from Saturday. India’s Finance Minister Arun Jaitley proposed raising taxes on cigarettes by at least 15 percent.
The MSCI Emerging Markets Index has risen 3.3 percent this year and trades at 11.8 times projected 12-month earnings, data compiled by Bloomberg show. That compares with a multiple of 16.8 for the MSCI World Index of developed-country equities, which is up 3.9 percent in 2015.
The premium investors demanded to own emerging-market debt over U.S. Treasuries fell 10 basis points to 346 basis points, according to JPMorgan Chase & Co. indexes.