Photographer: Dario Pignatelli/Bloomberg

Emerging Stocks Retreat to Two-Week Low on China, Fed Outlook

  • MSCI benchmark heads for biggest annual decline since 2011
  • Turkey's lira advances on EU pledge for aid, membership talks

Emerging-market equities dropped to a two-week low amid concern China’s slowdown will limit growth in developing economies as the U.S. moves closer to raising interest rates.

A gauge of raw-material stocks dropped to a two-month low as all 10 industry groups in the MSCI Emerging Markets Index declined. South Korean shares slid the most in two months and the won weakened after industrial production missed estimates. Brazil’s real slumped to a one-month low as a corruption probe threatened to sidetrack President Dilma Rousseff’s economic agenda. The Turkish lira strengthened amid prospects for European Union aid to stem the inflow of refugees.

“There are lingering concerns about growth, although they’re not quite as prevalent as they were during the summer selloff,” said William Jackson, a senior emerging markets economist at Capital Economics in London. “There is still some uncertainty surrounding the Fed meeting, the pace of the hikes.”

Equities in emerging markets are headed for their worst year since 2011 on concern the slowdown in China will ripple through developing economies such as South Korea, Indonesia and Brazil, which count on the world’s second-largest economy among their biggest trading partners. Prospects for the first increase in U.S. rates in almost a decade have further damped investor appetite for higher-yielding assets. 

Stocks Slump

The MSCI Emerging Markets Index fell 1.5 percent to 814.30. The gauge has dropped 4 percent in November and almost 15 percent in 2015. That compares with this year’s 0.9 percent retreat in the MSCI World Index of developed-nation stocks. Kumba Iron Ore Ltd. dropped 12 percent in Johannesburg, pacing declines among raw-material stocks.

South Korea’s Kospi index retreated 1.8 percent. Factory output rose 1.5 percent in October, compared with the median estimate for a 2.2 percent increase in a Bloomberg survey. The report comes a day before data forecast to show exports likely fell 9 percent in November, shrinking for the 11th straight month.

Samsung Electronics Co. fell 3.2 percent. The company’s Vice Chairman Lee Jae Yong is unlikely to be promoted to chairman, Chosun Ilbo newspaper reported, citing an unidentified Samsung official. 

China, Brazil

The Hang Seng China Enterprises Index declined for a sixth day, losing 0.7 percent in Hong Kong. The gauge slid 5.8 percent in November.

The Shanghai Composite Index gained 0.3 percent, after falling 3.2 percent, and ended November up 1.9 percent, its second monthly gain. Stocks erased losses in the last hour of trading on Monday as a second day of price swings tested the government’s plan to trim support for the equity market. After price swings on the index fell in November to their lowest levels since March, the government lifted a freeze on initial public offerings, raised margin requirements and scrapped a rule requiring brokerages to hold net-long positions.

The real weakened 0.6 percent against the dollar. One-month implied volatility in the currency surged to 22.5 percent, the highest level since October, as allegations that Grupo BTG Pactual SA bribed a prominent lawmaker added to political tension. The country’s Ibovespa stock gauge declined 1.6 percent.

Currencies Weaken

Indonesia’s rupiah lost 0.5 percent and South Korea’s won fell for a third day, sliding 0.4 percent. A gauge of 20 developing-nation currencies declined 0.2 percent. The index dropped 2.4 percent in November, the biggest monthly retreat since August, when China roiled global markets with a surprise devaluation of the yuan.

“Market players tend to prefer dollars over rupiah or other Asian currencies as they seek a safe-haven currency ahead of the last Fed meeting of the year,” said Trian Fatria, a treasury research analyst at PT Bank Negara Indonesia in Jakarta.

The offshore yuan rebounded from an early loss on Monday amid suspected central bank intervention. It held gains of about 0.4 percent after the International Monetary Fund voted to add China’s currency to its reserves basket.

Turkey’s lira rose 0.4 percent after its biggest weekly decline since March. The EU pledged to restart Turkey’s membership bid and a package of 3 billion euros ($3.2 billion) in assistance for refugees in return for Turkey bolstering its border controls. Turkey also reported its trade deficit narrowed more than expected in October.

The premium investors demand to own developing-country debt over U.S. Treasuries widened four basis points to 389, according to JPMorgan Chase & Co. indexes.

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