Emerging Stocks Extend This Year's Longest Slump on China, Fed

  • Brazilian markets drop on mixed signals about impeachment
  • Shanghai stock index posts worst two-day loss in 10 weeks

Emerging-market stocks fell for a seventh day, extending this year’s longest slump, and currencies retreated as disappointing trade data from China and prospects for higher U.S. interest rates sapped demand for riskier assets.

The Shanghai Composite Index capped its biggest two-day loss since February after the nation’s exports shrank in dollar terms in April and imports dropped for the 18th month. Raw-material stocks posted the steepest declines as metal prices dropped. Brazil’s real and the benchmark Ibovespa equity gauge fell as lawmakers sent mixed signals about efforts to impeach President Dilma Rousseff, briefly pushing markets into disarray.

“China’s economic health remains a big driver,” said Tony Hann, who helps oversee about $270 million as head of equities at Blackfriars Asset Management in London and favors Indian shares. On U.S. rates, markets “may have swung a bit far to the ‘too dovish’ side,” he said. “We are in very unfamiliar territory with respect to monetary policy, so sentiment is very skittish.”

A rally in emerging-market assets through April is starting to unwind as the latest data from the U.S. to China add to evidence that global economic growth remains subdued. A weaker-than-expected U.S. jobs report Friday failed to dent expectations of at least one Federal Reserve rate increase this year. New York Fed President William Dudley said in a New York Times interview that it remains a “reasonable expectation” that officials will raise borrowing costs twice this year.

The MSCI Emerging Markets Index fell 0.6 percent to 800.91, the lowest closing level since March 16. The gauge has advanced 0.9 percent this year and is valued at 11.3 times the 12-month estimated earnings of its constituents. That compares with a multiple of 15.7 for the MSCI World Index, which has fallen 1.2 percent in 2016.

The Shanghai Composite Index fell 2.8 percent, matching Friday’s retreat. PetroChina Co. declined 1.9 percent, leading Chinese commodity producers lower. Chinese shares traded in Hong Kong slid for a sixth day, their longest losing streak since December. While trade data disappointed, the People’s Daily warned about the country’s rising debt in a front-page article.

“News flow from China continues to be a letdown and affected sentiment,” said Christopher Wong, a Singapore-based senior investment manager at Aberdeen Asset Management, which oversees $428 billion globally. “As long as we don’t see any stability in China, we would not be seeing direction in terms of investors appetite.”

Philippines Election

Philippines markets were closed as voters elected Rodrigo Duterte, the tough-talking mayor who tapped into middle class frustrations over rising crime and inefficient public services, president on Monday. The one-month peso forward fell 0.4 percent to 47.47 per dollar at 4 p.m. in New York. The country’s dollar-denominated bonds due in 2041 advanced, sending yields down 3 basis points to 3.3 percent. The iShares MSCI Philippines exchange-traded fund declined 2.2 percent to a two-month low.

Russian markets were closed for a holiday.

The MSCI Emerging Markets Currency Index fell for a sixth day, dropping 0.4 percent in its longest losing streak since August.

The real weakened 0.6 percent, after paring a drop of as much as 4.8 percent. The Ibovespa reduced a decline of as much as 3.5 percent, closing down 1.4 percent. Brazil’s Senate will move ahead with impeachment proceedings, the head of the chamber said. Earlier on Monday, the interim president of Brazil’s lower house said he had annulled last month’s impeachment vote because of procedural irregularities.

The South African rand lost 1.9 percent while Mexico’s peso slid 1.8 percent. 

The premium investors demand to own emerging-market debt over U.S. Treasuries widened two basis points to 404, according to JPMorgan Chase & Co. indexes.

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