Emerging-Market Stock Swings Widen as Exchange Rates Fluctuate

  • Brazil's real surges most in seven years from record low
  • Yellen says U.S. rate increase probably appropriate this year

Emerging-market equities fell amid the widest price swings in four years and exchange rates fluctuated as traders weighed the potential timing of an increase in U.S. interest rates against signs of faltering global economic growth.

The Federal Reserve cited concern that the world economy is weakening when it kept U.S. borrowing costs unchanged last week. Meanwhile, a surprise decline in Chinese manufacturing has added to uncertainty about when policy makers will start raising interest rates for the first time since 2006, a move that is expected to divert funds from riskier assets in developing nations as the dollar strengthens. Fed Chair Janet Yellen said in a speech after trading closed that policy makers are on track for an increase this year, while acknowledging that economic “surprises” could lead them to change that plan.

Thirty-day volatility in the MSCI Emerging Markets Index has risen on three of the five days since the Fed’s Sept. 17 announcement, pushing it to 27 percent. The stock gauge fell 0.8 percent to 785.68 in New York on Thursday. A Bloomberg index of developing-nation currencies fluctuated between a gain of 0.5 percent and a loss of 0.5 percent and as Brazil’s real, South Africa’s rand and the Turkish lira touched record lows against the dollar.

Stocks, currencies extend losses since rate increase delayed

“The Fed’s decision to delay the interest-rate hike is actually working just the opposite way and creating uncertainty,” Hertta Alava, who helps oversee the equivalent of $395 million as the head of emerging markets at FIM Asset Management Ltd. in Helsinki, said by e-mail. “Volatility will stay relatively high at least until the next Fed meeting.”

The MSCI emerging-markets equity gauge has fallen 5.3 percent since Sept. 18 and trades at 10.4 times the projected earnings of its members, a 29 percent discount to advanced-nation shares. All 10 industry groups have dropped this week, led by measures of raw-material and energy stocks, which each slumped more than 7 percent.

Brazil’s real surged 5.8 percent, the most in seven years, as the central bank vowed to act to stem its rout amid doubts the government can shore up the economy. The currency earlier touched a record-low 4.2478 per dollar. It has been slumping amid mounting concern that President Dilma Rousseff’s policies won’t be able to stave off further cuts in the country’s credit rating. The Ibovespa stock benchmark fell 0.1 percent.

Russia, China

Russian equities posted the longest streak of declines in 14 months as the nation’s biggest mining companies fell on concern they may be targeted by the government for raising taxes to cover a budget shortfall. Norilsk Nickel PJSC declined 5.3 percent, contributing the most to the Micex Index’s 1.2 percent drop. The gauge has lost 6.4 percent in the last six days, trimming its advance this year to 16 percent. The ruble strengthened 0.5 percent against the dollar after reversing a 0.5 percent decline.

The Hang Seng China Enterprises Index declined 1.1 percent to a two-week low, as China’s economic slowdown overshadowed President Xi Jinping’s state visit to the U.S. Stocks in Shanghai rose in light trading before a week-long holiday starting next week.

South Africa’s rand strengthened 0.1 percent after falling as much as 1.6 percent to a record low. The lira fell 0.1 percent after slumping as much as 1.2 percent. The Malaysian ringgit fell 0.7 percent to the lowest level against the dollar since January 1998.

The premium investors demand to own emerging-market debt over U.S. Treasuries widened seven basis points to 408 basis points, according to JPMorgan Chase & Co. indexes.

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