Commodity Slide Jolts Emerging Markets as Argentine Bonds Climb

  • Gauge of 20 currencies ends four-day advance as rand slumps
  • Stock benchmark ends two-day gain as raw-material shares slump

UBS: China to Remain Center Stage in 2016

Emerging-market currencies fell for the first time in a week as a deepening slump in commodity prices hurt the revenue outlook for countries from South Africa to Russia. Argentine bonds gained after Mauricio Macri’s victory in runoff presidential elections.

A gauge of 20 developing-nation currencies dropped 0.5 percent. South Africa’s rand fell the most in more than a week as gold futures extended a month-long slump, dropping to the lowest level since 2008. Russia’s ruble dropped 1.7 percent even as oil, the country’s biggest export, advanced. Developing-nation stocks declined for the first time in three days.

Emerging-market currencies slide with commodity prices

The losses on Monday marked a turnaround from last week, when speculation that the Federal Reserve will raise interest rates only gradually improved sentiment in emerging markets, driving the best rally in six weeks for stocks and currencies. The greenback’s surge this year has weighed on raw-material prices at the same time as demand slows in China, pushing the Bloomberg Commodity Index to the lowest level since 1999.

“A stronger dollar is the biggest negative for emerging markets and while investors are positioned that way, it is hard to see EM doing well," Charles Robertson, a global chief economist at Renaissance Capital in London, said by e-mail. Robertson said he has an overweight recommendation on Russian stocks assuming oil at $50 to $60 a barrel, and also recommends shares in Romania, Pakistan, Morocco and Kazakhstan.

Energy Companies

The MSCI Emerging Markets Index declined 0.3 percent to 841.11 as five out of 10 industry groups dropped, led by raw-material stocks. A measure tracking energy companies rose 0.3 percent after Saudi Arabia repeated it was ready to cooperate with OPEC and other oil producers to stabilize prices.

Russia’s RTS Index jumped 1 percent to the highest level since July in a rebound sparked by the Saudi statement. Lukoil PJSC climbed 4.4 percent in Moscow.

The ruble retreated to 65.836 per dollar after gaining 3.1 percent last week. The rand fell 0.9 percent, while currencies in Brazil and Turkey weakened at least 0.7 percent.

Fed Decision

The probability that the Fed will raise the benchmark rate at its December meeting rose to 72 percent on Monday, according to futures data compiled by Bloomberg. That’s up from 50 percent at the start of this month. As the U.S. plans to tighten policy, speculation is growing that the European Central Bank will increase stimulus to spur inflation.

“Emerging markets are under pressure as the U.S. raising interest rates in December is a done deal,” said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. “The dollar will get stronger while China’s economic fundamentals haven’t shown any signs of improvement.”

The yuan slipped to the lowest level in three months as the central bank weakened the fixing. The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong fell 0.7 percent, with Guotai Junan International Holdings Ltd. plunging 12 percent, the most in three months. The company said it has been unable to contact its chairman and chief executive officer since Nov. 18.

Argentina Election

Aluminum producer Hindalco Industries Ltd. sank 3.8 percent to a seven-week low in Mumbai. The company will be excluded from the 30-stock S&P BSE Sensex from Dec. 21.

Argentina’s dollar-denominated bonds due in 2033 increased to the highest level since 2007. The country voted for change on Sunday, electing the center-right opposition leader Mauricio Macri to be president in a decisive end to 12 years of leftist populism, setting the stage for economic liberalization, a warming of relations with the U.S. and political reverberations across Latin America.

The MSCI Emerging Markets Index has fallen 12 percent this year and trades at 11.3 times 12-month estimated earnings. That’s a 30 percent discount to the MSCI World Index of developed-country shares. The premium investors demand to own emerging-market debt over U.S. Treasuries was unchanged at 378 basis points, according to JPMorgan Chase & Co. indexes.

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