Emerging-Market Assets Stumble Into Second Quarter as Oil Slumps

  • Developing-nation currencies slide after U.S. jobs report
  • Energy producers drop as oil falls on Saudi output comments

Emerging-market assets started the second quarter on a downturn as energy producers led stocks lower and currencies weakened against the dollar after a report showed U.S. employers added more jobs than forecast in March.

The MSCI Emerging Markets Index retreated from a four-month high as benchmarks from Asia to Europe and the Middle East declined. Colombia’s peso weakened 1.1 percent, leading currencies lower as oil prices tumbled after Saudi Arabia said the kingdom will only freeze output if other major producers do so. Stocks posted a 5.4 percent first-quarter gain and currencies ended the period with the biggest monthly advance on record amid bets that the Federal Reserve will move slowly to raise U.S. interest rates.

“There is some profit taking after the very strong March,” said Michael Wang, a strategist at hedge fund Amiya Capital LLP in London who is buying Indian, Polish and Mexican stocks, and selling Brazil. “We could get some more pull back from here.” Data showing unexpected growth in Chinese factory production also may have raised the probability of Fed interest-rate increases, he said.

Fed Chair Janet Yellen stressed the importance this week of being cautious in tightening monetary policy, brightening the outlook for inflows to emerging markets as low U.S. borrowing costs increase the appeal of riskier assets. Oil, one of the key drivers behind the rally in recent months, erased its gains for the year as a glut that pushed Brent crude prices to a 12-year low in January lingers. The Bloomberg Commodity Index posted a second weekly decline.

Behind the emerging-market gains, there are some ominous signs that the rally is about to hit a wall. See Story Here.

The MSCI Emerging Markets index dropped 1.3 percent to 826.19, reducing its weekly gain to 1.7 percent. Stocks slumped Friday as U.S. Labor Department figures showed employers added 215,000 jobs last month, compared with economists’ median estimates for 205,000. All 10 industry groups retreated. Energy stocks fell the most, dropping 1.8 percent.

A gauge tracking 20 developing-nation currencies slipped 0.2 percent, paring its five-day advance to 1.9 percent.

Brazilian stocks advanced, reversing an earlier decline, as iron-ore producer Vale SA advanced 4.3 percent to a three-week high. The Ibovespa equity benchmark added 1 percent. The real gained 1 percent, strengthening for a third day as speculation mounts that President Dilma Rousseff will be impeached and a new administration will be better able to pull the country out of a recession.

Russia, China

Russia’s ruble weakened 0.8 percent and the dollar-denominated RTS Index retreated 1.6 percent. Oil, Russia’s biggest export, tumbled 3.9 percent to $38.67 in London. Turkey’s equity index declined 1.1 percent.

The Hang Seng China Enterprises Index of mainland companies trading in Hong Kong slid 1.8 percent after rising on Thursday to the highest level since early January. The Shanghai Composite Index climbed 0.2 percent, reversing an earlier decline of as much as 1.6 percent, amid speculation that state-backed funds intervened to support the market.

Dollar Slump

South Korea’s won retreated 0.9 percent after reaching its strongest level in four months on Thursday. The Indonesian rupiah climbed 0.7 percent.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, slid 1.6 percent this week, the steepest drop since early February as Fed rate-increase expectations are pushed back. It slumped 3.9 percent in March following February’s 1.8 percent retreat.

“Markets have gone from extremely bullish U.S. dollar in January to extremely bearish in February-March,” said Philip Wee, senior currency economist at DBS Group Holdings Ltd. in Singapore. “And markets risk reading too much into Yellen’s recent remarks. Nothing much has changed in emerging markets -- exports are still in recession for most countries and China is still in the middle of a difficult economic transition.”

The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed two basis points to 407, according to JPMorgan Chase & Co. indexes.

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