Emerging Markets Extend Losses as Hawkish Remarks Halt Fed Rally

  • Stocks, currencies heading for first weekly drop in March
  • St. Louis Fed president says rate increase possible in April

Emerging-market stocks and currencies slumped for a second day as a rising chorus of U.S. Federal Reserve officials calling for quicker interest-rate increases drove investors away from riskier assets. 

A resurgent dollar sent oil and commodities lower, pushing equity gauges in Russia and the Middle East down by at least 0.7 percent. MTN Group Ltd. led nine shares trading without their latest dividend rights in Johannesburg, shaving off 0.5 percent from the benchmark index. Chinese shares in Hong Kong fell the most in a month on signs slower growth in the second-biggest economy is hurting corporate profits. Malaysia’s ringgit and South Africa’s rand were declined the most among developing-nation currencies.

A number of Fed officials are backing an April increase in U.S. interest rates. A move may be warranted at the next meeting amid prospects for inflation and labor-conditions exceeding targets, said James Bullard of St. Louis, a voting member of the Federal Open Market Committee this year. Philadelphia’s Patrick Harker said this week he would like to see the tightening of borrowing costs go “a little faster.” Central bankers from Atlanta and San Francisco also called for an imminent move.

‘Bearish Tack’

“The market is currently on a bearish tack,” said Tony Hann, who helps oversee about $270 million as head of equities at Blackfriars Asset Management in London. “It’s taking the news of weaker commodity prices and a possible rate hike in the U.S. negatively. Emerging markets have had a decent run and we are coming up to a long weekend. It isn’t surprising that investors don’t want to add to positions.”

The clamor by some officials for faster rate increases contrasts with the Fed’s official dovish tone, which has spurred a rally in developing-nation assets. Even after losses this week, stocks and currencies are heading for the best month in four years. Traders of fed-funds futures expect the central bank to hold its rates in April, with only a six percent probability of an increase.

The MSCI Emerging Markets Index dropped 1 percent to 813.61, falling for a second day, as trading decreased in most markets before the Easter weekend holidays. The gauge has fallen 1.6 percent this week. A gauge of 20 developing-nation exchange rates slid 0.2 percent, trimming the weekly decline to 0.7 percent.

Russia, Brazil

Russia’s dollar-denominated RTS Index dropped 2.1 percent to a one-week low. Brent crude fell 1.7 percent this week, after closing above $40 per barrel for six successive days. The Bloomberg Commodity Index slid for a second day.

A gauge of Middle eastern stocks slipped 1.5 percent as benchmark indexes in Dubai and Abu Dhabi lost at least 1 percent. Oman’s MSM 30 Index defied the trend, rising for a seventh day. An official said this week that the government in Muscat is working on a draft law to allow 100 percent foreign ownership in select industries.

The Ibovespa slipped 0.1 percent, pushing this week’s decline to 2.3 percent. The benchmark index ended its longest streak of weekly gains in almost two years as a disappointing earnings season showed the depth of Brazil’s recession.

The FTSE/JSE Africa All Share Index retreated 0.5 percent in Johannesburg, dropping for a third day. MTN’s ex-dividend status on Wednesday cut 184 points off the index. Old Mutual Plc and FirstRand Ltd. also traded without payout rights.

Yield Spread

The Shanghai Composite Index fell 1.6 percent, the biggest decline in two weeks, as some of China’s largest firms including Anhui Conch Cement Co. and PetroChina Co. reported slumping profits. The Hang Seng China Enterprises Index dropped 1.9 percent.

The MSCI measure trades at 11.6 times the projected earnings of its members, a 26 percent discount to advanced-nation shares.

Russia’s ruble reversed earlier losses to gain 0.3 percent against the dollar. The Malaysian ringgit fell 0.9 percent, the biggest decline among 24 emerging currencies. The rand weakened 0.8 percent.

The premium investors demand to own emerging-market debt over Treasuries widened one basis point to 406, according to JPMorgan Chase & Co. indexes.

The Czech Republic’s five-year government bonds rose for the first time in 10 days, pushing the yield back to negative after it briefly traded above zero on Wednesday. The notes fell this month as investors reduced bets for a rate cut in the eastern European nation.

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