Emerging-Market Rout Deepens as China Boost Fizzles, Ruble Sinks

  • Mainland, Hong Kong-listed Chinese shares extend losses
  • Ruble falls to record, Philippine stocks drop to a 2-year low

Finding Opportunity in Emerging Markets

The $2.3 trillion rout in emerging-market stocks deepened as the capital exodus from China showed no signs of abating. Russia’s ruble plunged to a record as investors dumped the currency of the world’s largest energy exporter.

Cash injections by the world’s second-biggest economy to ease a money-market squeeze failed to improve sentiment as shares in Shanghai and those in Hong Kong extended losses. Qatar led declines among most equity markets in the Middle East as Brent crude traded below $30 a barrel. The ruble weakened 1.5 percent against the dollar. Brazil’s real slid to the lowest since September after the central bank unexpectedly refrained from raising interest rates.

Developing-nation stocks have made the worst start to a year on record with at least 26 emerging and frontier markets in bear territory. The epicenter of the selloff is in China, where the slowest growth since 1990 and yuan volatility have shaved off $4.3 trillion from the nation’s equities. Lower demand from the world’s second-biggest economy has contributed to a plunge in commodity prices to a record, sparking a contagion across exporting nations such as Russia and Brazil.

“The bear sentiment is just a case of the blues for a lot of the investors; there’s a feedback between oil prices, China and rest of the emerging markets,” Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management, who helps oversee $242 billion, said by phone from Menomonee Falls, Wisconsin. “It’s just unfortunately going to take sometime to play out here."

The MSCI Emerging Markets Index slid 0.6 percent to 688.52, reversing earlier gains of as much as 0.9 percent. The gauge closed at the lowest since May 2009, sending valuations to the cheapest since March 2014.

A technical measure signaled weakening momentum in the MSCI gauge. The 14-day relative strength index hovered below 30 for a 12th day. While traders see a temporary dip to that level as a sign of an upcoming rebound, they interpret a prolonged stay below that threshold as indication a downtrend is taking hold.

“We will see a very volatile period as markets are still faced with the conundrum on oil and global growth,” Robert Ramos, who helps manage about $836 million as chief investment officer at Union Bank of the Philippines, said in Manila. “Funds won’t come in a big way.”

Stocks

Eight of 10 industry groups in MSCI’s developing-markets gauge dropped, led by utility and industrial companies. Hong Kong’s Hang Seng China Enterprises Index lost 2.2 percent to the lowest close since March 2009. The Shanghai Composite lost 3.2 percent to the lowest since 2014. 

China is trying to hold borrowing costs down to support its economy without spurring an exodus of funds that drove the yuan to a five-year low this month. The People’s Bank of China said Thursday it conducted 110 billion yuan ($16.7 billion) of seven-day reverse-repurchase agreements and 290 billion yuan of 28-day contracts. A gauge of interbank funding availability jumped the most in 13 months on Wednesday.

The Philippine stock index dropped 2.8 percent to the lowest level since Feb. 2014. Foreign investors have pulled $63 million from the nation’s shares in January, poised for a record 10th straight month of withdrawals. The measure entered a bear market on Jan. 11. India’s S&P BSE Sensex fell to the lowest since May 2014, while Vietnam’s VN Index dropped to the lowest since December of that year.

Currencies

A gauge tracking 20 developing-nation currencies fell less than 0.1 percent. The ruble fell 1.5 percent to 82.63 against the greenback. The ruble is trading beyond the lows it touched at the peak of Russia’s financial turmoil in December 2014. The ruble-denominated Micex Index advanced 2.9 percent, the most in a year. The equity benchmark in Qatar declined 1.2 percent.

The real fell 1.4 percent versus the dollar. Brazil kept its benchmark interest rate unchanged Wednesday, in a decision seen only by 15 of the 57 analysts surveyed by Bloomberg. Since the bank’s last meeting in November, surging inflation and hawkish central bank commentary had most observers anticipating a half-point increase.

Malaysia’s ringgit strengthened 0.3 percent. The country ordered lenders to set aside less cash as reserves and kept the key interest rate steady.

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