Emerging Stocks Decline for Fourth Week on Global Growth Concern

  • Stocks post worst weekly streak since August as China slumps
  • Currencies retreat as oil pares weekly gain, dollar advances

Will Geopolitics and Growth Woes Impact Emerging Markets?

Emerging-market stocks posted their longest streak of weekly declines since August and currencies retreated on concern the pace of global growth remains sluggish.

Shares in China declined on speculation the government will refrain from adding fresh stimulus. Hungarian equities fell and the forint slid to the lowest level since March after the economy unexpectedly contracted. Brazilian stocks retreated as traders weighed the impact of a potential change in government. South Africa’s rand slid more than 2.5 percent, the worst performance among major currencies. Russia’s ruble dropped with oil.

A rally that has pushed emerging-market equities benchmark up 16 percent from this year’s low in January is faltering as investors pulled $3 billion from stocks in Asia and Brazil this month. Worse-than-expected data from the U.S. and China fueled concern that central banks may be unable to sustain a recovery, while oil pared a weekly advance as investors weigh supply reductions from the Americas to Nigeria.

“There’s been one driver of this year’s rally in emerging markets and that’s commodities,” said Anders Svendsen, an emerging-markets analyst at Nordea Bank AB in Copenhagen. “We’ve reached a point now where it will be more difficult to get impetus from commodities. Growth numbers from Hungary today are hugely disappointing.”

Stocks

The MSCI Emerging Markets Index fell 1.3 percent to 796.07, pushing its fourth straight weekly decline to 1.2 percent. The gauge trades at 11.3 times the projected 12-month earnings of its members, compared with a multiple of 15.7 for the MSCI World Index.

The Shanghai Composite Index slid 0.3 percent on Friday, extending a five-day retreat to 3 percent, a fourth weekly drop. The Hang Seng China Enterprises Index dropped 10 percent from the April high, entering a so-called correction. Chinese data on new loans and aggregate financing released after the market close trailed analyst estimates. Reports on industrial production and retail sales are scheduled for Saturday.

Hungarian equities dropped 1.1 percent in Budapest as a report showed the economy shrank for the first time in four years after a fall in European Union funding. Poland’s WIG20 Index was little changed before a Moody’s Investors Service review of the country’s A2 rating due Friday. All but one of 21 analysts surveyed by Bloomberg forecast that Moody’s will take negative action.

Brazil Decline

The Ibovespa fell 2.7 percent, reducing a weekly advance to 0.2 percent. After Brazilian stocks posted the world’s biggest rally this year among major markets, a growing chorus of investors have started warning that future gains may be limited as a new government works to implement economic measures aimed at reviving Latin America’s largest economy. Acting President Michel Temer took over Thursday after the Senate voted to suspend Dilma Rousseff while she stands trial on allegations she illegally financed a budget deficit.

The MSCI Emerging Markets Currency Index retreated 0.5 percent on Friday, and was down 0.6 percent for the week. The Bloomberg Dollar Spot Index rose for a second week as traders increased expectations for tighter Federal Reserve policy after two regional central bank presidents made cases for an interest-rate increase.

The rand retreated 2.6 percent, the most among 24 developing-nation exchange rates tracked by Bloomberg.

The Hungarian forint retreated 0.1 percent against the euro. The ruble fell 0.9 percent against the dollar, cutting a five-day gain to 0.7 percent, as oil pared a weekly advance, sending currencies of commodity-producing countries including Mexico and Colombia lower.

The extra yield investors demand to own emerging-market debt rather than Treasuries increased three basis points to 397, according to JPMorgan Chase & Co. indexes.

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