Emerging Markets Decline as Traders Look Ahead to U.S. Jobs Data

  • Developing-nation equity benchmark falls to four-week low
  • Ruble weakens most among currencies as oil prices drop

Emerging-market stocks fell to a four-week low as demand for higher-yielding assets cooled before a U.S. payrolls report that is seen as a key barometer for whether the Federal Reserve will raise interest rates this year.

The MSCI Emerging Markets Index slipped 0.3 percent to 891.08, declining for a second day. Russia’s ruble weakened the most among currencies as oil, the nation’s biggest export, fell for a fourth day, selling for less than $46 a barrel in London. South Africa’s rand halted a nine-day rout as a technical indicator signaled it may have declined too quickly.

While U.S.-listed emerging market exchange-traded funds have added $19 billion over the last 13 weeks amid a prevalence of negative interest rates in developed-nation economies, inflows have slowed in the last 14 days as odds for a U.S. interest rate move this year increased after Federal Reserve Chair Janet Yellen said the case for tightening had strengthened. The U.S. payrolls report due on Friday explains investors’ unwillingness to make big bets, said Simon Quijano-Evans, an emerging-markets strategist at Legal & General Group Plc in London.

“Following the great summer run, emerging-market investors are bound to move into caution mode ahead of each important release, culminating in the Sept. 21 Fed meeting,” Quijano-Evans said. “Tomorrow’s non-farm payrolls data is a major input factor.”

Seven out of 10 developing-nation industry gauges dropped Thursday, led by utility and telecommunications stocks. Thursday’s decline reduced the MSCI Emerging Markets Index’s gain this year to 12 percent.

The Ibovespa increased 0.6 percent in Sao Paulo after declining as much as 0.5 percent. Brazilian stocks fluctuated as investors re-balanced their portfolios after a change in government. Traders are reassessing the likelihood and timing of the nation’s recovery from recession under the leadership of President Michel Temer, who vowed to change economic policies as he replaced Dilma Rousseff after she was removed from office Wednesday.

China Gas Holdings Ltd. fell 9.9 percent, the most in four months in Hong Kong, leading a drop in gas distributors on concern that selling prices and margins may be curbed by the government. Battery maker Samsung SDI Co. fell 6.1 percent, the most in more than two months, after Chosun Ilbo reported that parent Samsung Electronics Co. will recall its new phone model over faulty batteries. South Korea’s Kospi index dropped 0.1 percent.

Poland, China

Polish stocks led declines in developing Europe, pushing the WIG20 Index down 1.8 percent. PKO Bank Polski SA fell as much as 2.6 percent after its chief executive officer was quoted as saying the bank prefers to grant loans to clients rather than paying out a dividend.

The Shanghai Composite Index slumped 0.7 percent, while the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong gained 0.8 percent.

The MSCI Emerging Markets Currency Index fell 0.2 percent to the lowest level since late July. The ruble weakened 0.9 percent. The won fell 0.6 percent as a report showed South Korea’s current-account surplus narrowed in July. 

South Africa’s rand rose 0.9 percent as its 14-day relative-strength index was near 30 on Wednesday, a level that suggests to some traders an asset is poised to rebound. Heightened domestic political risks led Africa’s biggest private fixed-income money manager Futuregrowth Asset Management to stop lending money to six of the country’s largest state companies.

Yield Spread

South African bonds rose, with yields on benchmark government notes due December 2026 dropping seven basis points to 9 percent after rising 42 basis points in August.

The premium investors demand to own emerging-market bonds rather than U.S. Treasuries increased four basis points to 342, according to JPMorgan Chase & Co. indexes.

U.S. employers probably added 180,000 jobs in August, after a 255,000 increase the previous month, a Bloomberg survey of economists showed.

Angus Nicholson, a market analyst in Melbourne at IG Ltd., said the U.S. report could widen the market’s fluctuations. The J.P. Morgan Emerging Market Volatility Index has climbed to 10.1 since reaching 9.43 in July, its lowest level in almost a year.

“It has been a very quiet August and markets seems to be livening up a bit as people come back from the holidays and there’s a whole lot of new data that needs to be priced in,” Nicholson said.

— With assistance by Y-Sing Liau

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