Emerging Stocks Retreat as Deutsche Bank Damps Sizzling Quarter

  • Benchmark gauge reduces three-month gain to less than 9%
  • Developing-nation financial shares decline to two-week low

Emerging-market stocks fell on the final day of their best quarter since 2012 as concern about the finances of Deutsche Bank AG sapped risk appetite.

The MSCI Emerging Markets Index dropped for the first time in four days, declining 1.1 percent to 903.46. Benchmark gauges from Russia and Turkey to South Korea and Malaysia each fell at least 0.7 percent. A gauge of developing-nation exchange rates rose less than 0.1 percent Friday and posted a third consecutive quarterly gain.

A rally in developing-nation equities fueled by earlier bets the Federal Reserve will delay interest-rate increases faded as better-than-forecast U.S. economic data bolstered the case for policy tightening and anxiety grew over the wider implications of Deutsche Bank’s capital troubles. Stocks still added $818 billion in market value and currencies capped gains in all the first three quarters of a year for the first time since 2007, prompting analysts to say the advance will resume soon.

“This week’s bearishness has been caused primarily by concerns about Deutsche Bank, which will extend into the first part of the final quarter,” said Per Hammarlund, the chief emerging-market strategist at SEB SA in Stockholm. “Looking further, emerging-market risk appetite will stay strong. With the Fed unlikely to hike until December, capital will continue to flow.”

Deutsche Bank Chief Executive Officer John Cryan has been struggling to convince investors that the German lender has the funds to deal with legal bills, including a request for $14 billion from the U.S. Department of Justice. Deutsche Bank shares have more than halved in value this year, while its default risk has soared. A measure of developing-nation financial stocks slid 0.9 percent Friday, led by China Construction Bank Corp.’s 2.4 percent drop.

Friday’s decline in the MSCI Emerging Markets Index reduced its quarterly advance to 8.3 percent. Gains in the past three months have been largely driven by optimism that global central banks will sustain monetary stimulus that has supported demand for higher-risk assets.

Stocks got a boost Thursday after OPEC reached a preliminary agreement to cut production for the first time in eight years. Oil prices slipped on Friday, trimming a second monthly gain.

China, Russia

All 11 industry groups in the developing-nation stock index decreased Friday. China Construction Bank Corp. and Industrial & Commercial Bank of China Ltd. fell at least 2.4 percent in Hong Kong. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong declined 2.2 percent, trimming its best quarterly gain since 2014.

The Micex Index fell 0.9 percent in Moscow. The gauge posted a 4.6 percent quarterly gain after touching a record high on Sept. 7.

The MSCI Emerging Markets Currency Index was little changed. The measure gained 2.2 percent since the end of June. 

Mexico’s peso strengthened 0.7 percent on Friday, pushing its gain for the week to 2.1 percent, the best performance in the world. Citigroup Inc. said the peso’s recent outperformance may not not last as speculation about the U.S. election result pushes it lower. The currency dropped 5.7 percent this quarter.

The South African rand rose 1.2 percent on Friday, pushing the three-month increase to 7.3 percent. The currency rose for a third quarter, the longest winning streak since March 2010.

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