Emerging-Market Stocks Drop as Focus Turns to Fed Rate Outlook

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Emerging-market stocks ended a three-day rally as investor attention shifted from Greece to the timing of U.S. interest-rate increases.

The Shanghai Composite Index slid 1.2 percent before data that may show China’s economy slowed. The S&P BSE Sensex dropped in Mumbai as lenders and automobile companies slumped. South Africa’s equity benchmark fell for the first time in five days. Petroleo Brasileiro SA rose, leading Brazilian stocks higher as crude rebounded. Gubre Fabrikalari TAS, a Turkish fertilizer with operations in Iran, surged to a 10-year high.

The MSCI Emerging Markets Index decreased 0.2 percent to 940.83. While an agreement over a bailout lessened the imminent threat of Greece exiting the euro and removed an obstacle for the Federal Reserve to raise borrowing costs, the outlook for inflation from lower oil prices and an unexpected drop in U.S. retail sales gave policy makers more room to leave interest rates on hold.

“The Fed risk remains relevant and might indeed come more to the forefront after the Greek deal,” Maarten-Jan Bakkum, a senior developing-country strategist at NN Investment Partners in The Hague, said by e-mail. “Also important remains the China risk. The Iran deal is keeping downward pressure on oil. This is negative for Russia and other oil producers.”

Fed Chair Janet Yellen’s congressional testimony tomorrow may provide some clues as to the timing of rate increases.

Crude Rises

The nuclear agreement will enable Iran to restore about 500,000 barrels a day by mid-2016 and an additional 500,000 a day by the end of next year, according to Commerzbank AG. Brent crude rose 1.1 percent in London, reversing an earlier decline amid speculation the return of sanctioned Iranian oil will be gradual. The Tehran Stock Exchange’s benchmark TEDPIX Index advanced 0.3 percent to close at the highest since April.

“Iran has always been a market with great opportunities waiting for an opening,” Rouzbeh Pirouz, the executive chairman of Tehran-based Turquoise Partners, said by e-mail. “With this deal in place and subsequent removal of sanctions, Iran could turn into an engine of economic growth for the whole region.”

India’s benchmark stock index fell 0.1 percent. Tata Motors Ltd. led the decline, slumping 4.1 percent. Jaguar Land Rover, the company’s U.K. luxury-car unit, cut its sales targets and prices in China amid slowing demand in the world’s largest auto market.

Gubretas surged 18 percent. The Turkish company owns 49 percent of Razi Petrochemical Co., an Iranian producer of fertilizers and feedstock.

Petrobras gained 1.5 percent in Sao Paulo. The Ibovespa equity benchmark advanced 0.2 percent.

Lira Strengthens

The lira appreciated 0.6 percent against the dollar. Russia’s ruble increased 0.2 percent. An index of 20 developing-nation currencies added 0.1 percent. The premium investors demand to hold emerging-market debt over U.S. Treasuries widened four basis points to 345 basis points, according to JPMorgan Chase & Co. indexes.

U.S. retail sales decreased 0.3 percent after a 1 percent advance in May that was smaller than previously reported, Commerce Department figures showed Tuesday. The median forecast of 82 economists surveyed by Bloomberg called for a 0.3 percent gain. Eight of 13 major retail categories showed declines in demand.

Five out of 10 industry groups in the MSCI gauge fell. Samsung Electronics Co. sank 3.2 percent to a seven-month low in Seoul as technology companies retreated.

The Shanghai Composite fell for the first time in four days, while Hong Kong’s Hang Seng China Enterprises Index lost 1.4 percent. China’s second-quarter economic growth may have slowed to 6.8 percent from 7 percent in the first three months, according to a median estimate in a Bloomberg survey before a report tomorrow.

ZTE Corp. surged 16 percent in Hong Kong after announcing a plan to spend as much as 1 billion yuan ($161 million) buying back shares in China.