Emerging Markets Slide as Paris Attacks Intensify Risk Aversion

  • Airline stocks tumble on concern tourist travel will slow
  • Shares in Hong Kong decrease 2% on margin-trading curbs

Why the Markets Remain Resilient After Paris Attacks

Emerging markets bore the brunt of a clamor for safety as Europe’s worst terror attack in more than a decade exacerbated a selloff driven by deteriorating global economic growth and looming U.S. interest-rate increases.

A gauge tracking 20 developing-nation currencies fell to the lowest level since late September. The MSCI Emerging Markets Index declined to a six-week low. Asian air carriers tumbled on speculation tourists will cut back on travel to Europe, while Turkish Airlines fell 2.6 percent in Istanbul. Concern deepened that geopolitical tension will curb trade and slow global growth after least 129 people were killed in seven locations across the Paris area on Friday night.

The violence came at a time when China’s slowdown has curbed the outlook for trade flows with other emerging nations, while speculation that the Federal Reserve will start raising rates in December is undercutting the appeal of riskier assets offering higher returns. Chinese equities in Hong Kong led declines on Monday as mainland officials tightened curbs on the use of borrowed money to buy Chinese shares.

“Investors are worried about the growth outlook in emerging markets, especially if the Fed starts tightening rates this year,” said Michael Wang, a strategist at hedge fund Amiya Capital in London, who prefers South Korean stocks and dislikes those in Brazil. “This is being compounded by the terrorist attacks over the weekend. It’s a risk-off day for equities due to the Paris attacks."

Airlines Drop

The MSCI emerging-market stock measure retreated 0.9 percent to 813.38 as nine of 10 industry groups fell, led by technology and industrial companies. The currency gauge lost less than 0.1 percent as the attacks in Paris compounded concerns over deteriorating economic growth and looming U.S. interest-rate increases. The Chilean peso weakened 0.5 percent.

The premium investors demand to own emerging-market debt over U.S. Treasuries was unchanged at 388 basis points, according to JPMorgan Chase & Co. indexes. Investors pulled $1.06 billion out of U.S. exchange-traded funds that buy emerging-market stocks and bonds in the third straight week of outflows.

Taiwan’s Eva Airways Corp. tumbled 5.4 percent, while China Southern Airlines Co. and China Eastern Airlines Corp. each dropped at least 2 percent on concern that the Paris terrorist attacks will deter tourists from traveling to the French capital. Hungarian low-cost carrier Wizz Air Holdings Plc declined to the lowest level since Nov. 5 and Turkish Airlines dropped the most since Sept. 1.

France said the violence was directed from Syria and launched from Belgium. Islamic State said the Paris attacks were payback for France’s military involvement in the Middle East.

‘Investors Nervous’

Stock indexes in Turkey, Nigeria and Egypt declined at least 0.6 percent, while shares in Dubai advanced after slumping the most since August on Sunday. The EGX 30 Index in Cairo dropped for a second day, bringing the retreat to 14 percent since a Russian aircraft crash over the Sinai peninsula on Oct. 31 amid growing evidence that a bomb may have been the cause. Russia, the biggest source of Egypt’s tourists, canceled flights to the North African nation.

“The recent attack in Paris is making investors nervous as it shows terrorism is on the rise,” says Rafael Palma Gil, who helps oversee about $1.8 billion as a trader at Rizal Commercial Banking Corp. in Manila. “Before, this market was weak on anticipation that the U.S. will raise interest rates. The global picture already isn’t looking good and these attacks are adding to the negative market sentiment.”

The real strengthened 0.8 percent and the Ibovespa equity benchmark gained 0.7 percent. Brazilian assets rebounded after President Dilma Rousseff said Finance Minister Joaquim Levy will stay in the government, denying local media reports that she planned to replace him.

The MSCI Emerging Markets Index’s 14-day relative strength index fell to 33.7, the lowest since Sept. 7. A reading below 30 is a signal to some traders that a rebound is imminent.

Paris Attacks Weigh on Emerging Stocks

AngloGold Ashanti Ltd. and Gold Fields Ltd. rose in Johannesburg as the attacks in Paris reinvigorated bullion’s traditional role as a haven. Gold climbed for the first time in four sessions.

Russia’s ruble strengthened 2.3 percent against the dollar, the most in two months, as companies bought the domestic currency to make tax payments. Oil rose after failing to drop through $40 a barrel. The Micex Index gained 0.7 percent.

Hong Kong’s Hang Seng China Enterprises Index declined 2 percent, while the Shanghai Composite Index reversed a decline of as much as 1.7 percent on speculation state funds bought shares. Mainland stock exchanges cut by half the amount of borrowed money investors can use to buy stocks, as authorities sought to prevent a repeat of the excesses that led a $5 trillion rout.

The Philippine Stock Exchange Index sank 1.8 percent in its ninth straight day of declines, the longest slump since 2001, after foreign investors pulled a net $65.8 million from the nation’s shares last week.

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