Emerging Assets Retreat as Global Growth Concern Outweighs Fed

  • Brazil's real leads developing-nation currencies lower
  • Russian, Mexican equity gauges slip as oil prices decline

The Varied Troubles Facing Emerging Market Economies

Most emerging-market currencies weakened and raw-material companies fell the most among stocks as the Federal Reserve’s affirmation of a slower path of rate increases failed to ease concern that the global economic outlook is deteriorating.

Brazil’s real slumped for the third time this week as the central bank extended its effort to weaken the currency after a 10 percent first-quarter rally. Russian and Mexican equity benchmarks each fell at least 0.5 percent as crude prices ended a two-day advance. The MSCI Emerging Markets Index ended the session little changed at 809.29, after swinging between a gain of 0.5 percent and a 0.3 percent decline.

Developing-nation stocks have retreated 3.3 percent in April after posting the biggest monthly gain since 2009 as investors questioned the strength of the rally amid slowing growth and rising political risk. The Fed’s reaffirmation of its dovish policy has helped buoy demand for riskier assets as it eased concern that higher U.S. interest rates would drain emerging markets of capital flows. Traders of Fed funds futures now assign zero chance of a U.S. rate increase in April, data compiled by Bloomberg show.

“Emerging markets are still quite closely tied in to global risk,” said Peter Attard Montalto, an emerging-market analyst at Nomura International Plc in London, who recommends buying assets in Poland and Turkey.

Raw-material stocks fell the most among 10 industry groups in the MSCI developing-nation stock gauge, slipping 0.5 percent. The benchmark trades at 11.5 times the estimated 12-month earnings of its members, a 26 percent discount to advanced-nation equities.

The MSCI Emerging Markets Currency Index ended the session little changed as gains in the Argentine peso and Indonesian rupiah offset declines in Brazil’s real. The gauge has declined 1.1 percent in April following a 5.2 percent surge that was the biggest since records began in 1999.

The real fell 1.3 percent. Brazil’s central bank is moving to weaken the currency after last month’s rally, which was bolstered by lawmaker efforts to impeach President Dilma Rousseff. The Ibovespa equity benchmark rose 0.9 percent as speculation mounted that Rousseff’s ouster will clear the way for a new administration that will be better able to pull the country out of recession.

Russia, Mexico

The dollar-denominated RTS Index slipped 0.5 percent and the ruble weakened 0.6 percent against the dollar in Moscow. The IPC Index fell 0.5 percent, while Mexico’s peso slumped 1.2 percent. Brent crude declined 1 percent to $39.43 a barrel amid speculation that an unexpected U.S. crude supply decline won’t be followed by additional drops.

The Shanghai Composite Index dropped 1.4 percent, and the Hang Seng China Enterprises Index of mainland Chinese companies trading in Hong Kong decreased 0.3 percent, its fourth straight day of losses. ZTE Corp. slid 10 percent in Hong Kong as trading resumed following a one-month halt after the U.S. government alleged it violated trade sanctions with Iran.

Bonds of Asia’s high-yield currencies gained, pushing down the yield on India’s 10-year debt by two basis points to 7.44 percent and Indonesia’s by four basis points to 7.58 percent. Similar Malaysian notes declined, driving the 10-year yield up by three basis points to 3.82 percent.

Foreign holdings of Malaysia’s sovereign and corporate bonds rose by 5.3 percent to 226.6 billion ringgit ($58 billion) in March, the biggest increase since May 2014, according to central bank data released on Thursday. Overseas investors boosted ownership of government debt by 5.7 percent to a record 186.7 billion ringgit.

The premium investors demand to own emerging-market debt over Treasuries widened seven basis points to 416, according to JPMorgan Chase & Co. indexes.

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