Emerging Stocks Fall as Yuan Weakens; Rand Slumps to Record Low

  • China cuts yuan’s reference rate to the weakest since 2011
  • Rand plunges as South Africa replaces finance minister

PBOC Cuts Fixing Rate as Fed Decision Looms

Emerging-market stocks fell as declining Chinese producer prices deepened concern that the magnitude of the country’s economic slowdown will be greater than forecast. The yuan dropped as the nation’s central bank cut its reference rate to the lowest level since 2011.

A gauge of Chinese shares in Hong Kong slumped for a fifth day. Poland’s largest insurer dragged that country’s equity benchmark to a six-year low after its chief executive resigned as part of a government reshuffle of state-owned companies. Polish bond yields rose to the highest since September. The rand plunged to a record low after South Africa’s finance minister was removed from office. The Ibovespa rallied the most in five weeks and the real strengthened on speculation support to oust Brazil’s president is growing.

“Weak PPI numbers show how the manufacturing sector is struggling,” said Hertta Alava, who helps oversee about $395 million as the head of emerging markets at FIM Asset Management Ltd. in Helsinki and prefers Indian and Russian stocks to shares in China and Brazil. “China is the key for emerging-market sentiment and certainly these issues will still be there in 2016.”

Developing-nation stocks are headed for their worst year since 2011 on concern China’s slowdown is deepening as the U.S. moves closer to raising interest rates, eroding demand for riskier assets in emerging economies. A gauge of 20 currencies fell to record lows this week, and equity valuations have retreated to the least relative to developed countries in more than a year.

MSCI Emerging Markets Index’s Valuations Versus MSCI All Country World Index

The MSCI Emerging Markets Index fell less than 0.1 percent to 795.23, with 454 stocks lower and 310 higher. The gauge has slumped 17 percent this year. The measure’s 14-day relative-strength index has declined to 31.5, near the level of 30 that some technical analysts see as a signal a market is poised to rebound.

Stocks

The Hang Seng China Enterprises Index lost 1.1 percent to the lowest since Sept. 30, while the Shanghai Composite Index ended the day little changed after swinging between gains and losses. 

China’s producer-price index fell 5.9 percent, versus a projected 6 percent drop, while the consumer-price index rose 1.5 percent in November from a year earlier, compared with the 1.4 percent median estimate in a Bloomberg survey and 1.3 percent in October. 

PZU SA slid 4.5 percent in Warsaw as the WIG20 Index dropped 2.3 percent to the lowest since April 2009. The S&P BSE Sensex Index of Indian stocks slid for a sixth day, losing 1.1 percent.

Crude Drops

Energy producers led Russia’s Micex 0.8 percent higher. Brent crude closed 0.4 percent lower at $40.11 a barrel in London after swinging between a 3.3 percent gain and a decline of as much as 1.7 percent.

Brazil’s Ibovespa advanced for the first time in four days, climbing 3.7 percent on speculation the proposed impeachment of President Dilma Rousseff is gathering more support among lawmakers. The real gained 1.2 percent. The lower house created a committee to evaluate the request to oust Rousseff and recommend whether hearings against her should begin. It was seen as a defeat for the president, who has sought to win over enough lawmakers to stop the proceedings.

The yuan slid 0.2 percent to the weakest since 2011. China’s cut in the yuan’s reference rate fueled speculation that the central bank is trying to release pent-up depreciation pressure before an expected increase in U.S. interest rates. 

Rand Plunges

The rand plunged 2.5 percent to 14.9658 per dollar. South Africa removed Finance Minister Nhlanhla Nene after less than two years in the post. The cabinet shakeup, the sixth since President Jacob Zuma took office in May 2009, is the latest shock to an economy hit by plunging metal prices.

South Korea’s won slipped 0.1 percent to a two-month low as traders awaited signals from the Bank of Korea on next year’s monetary policy outlook amid the prospect of higher U.S. interest rates. Policy makers will keep the benchmark rate at a record low of 1.5 percent for a sixth month on Thursday, according to all 17 economists in a Bloomberg survey.

The premium investors demand to hold emerging-market debt rather than U.S. Treasuries narrowed one basis point to 402, according to JPMorgan Chase & Co. indexes.

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