Emerging Markets Drop on Fed as Gordhan Summons Roils S. Africa

  • MSCI stocks gauge falls most this month on rate-increase bets
  • Rand tumbles as finance minister faces charges in fraud case

Emerging-market stocks fell the most this month as increased bets for a Federal Reserve interest-rate hike drove investors from riskier assets. South Africa’s rand led currencies lower after prosecutors said Finance Minister Pravin Gordhan will be charged in a fraud case.

Egyptian stocks slumped the most in three weeks as Saudi Arabia’s halt of a fuel-aid program fueled speculation that a dispute with one of the country’s key financial backers is deepening. Chinese shares traded in Hong Kong slid as concern about property curbs weighed on real estate companies. The Ibovespa ended a four-day gain as a drop in commodity prices overshadowed optimism that President Michel Temer will get Brazil’s finances and economy back on track. The rand fell the most since June as Gordhan said police visited him to hand over a summons.

Investors pruned their exposure to emerging assets as the Fed funds futures market signaled a 67 percent probability the Fed will raise rates in December, compared with a 59 percent likelihood seen at the end of last month. The Gordhan affair rekindled concern about domestic risks in developing nations that also include India-Pakistan tensions, the aftermath of a Turkish coup and a corruption probe in Brazil.

“The market grossly underestimated the political risk in South Africa, so this is a real wake-up call,” said Peter Attard Montalto, an economist at Nomura International Plc in London. “Emerging-market investors are all looking at developed-market risks, not at emerging-market risks.”

The MSCI Emerging Markets Index retreated 1.4 percent to 905.57. All 11 industry groups in the gauge fell, led by information-technology and consumer-discretionary stocks. The benchmark has gained 0.2 percent in October.

The EGX 30 Index dropped 1.6 percent in Cairo. Saudi Arabia’s decision to halt a fuel-aid program for one month, for which no official reason was announced, follows Egypt’s vote in the United Nations in favor of a Russian-drafted resolution on Syria that it opposed.

The Ibovespa declined 1.1 percent, after advancing 3.9 percent in the prior four sessions. Oil producer Petroleo Brasileiro SA and mining company Vale SA were among the biggest contributors to the decline as global commodity prices dropped. Some companies that depend on domestic demand climbed after Brazilian lawmakers approved a bill to cap growth in public spending as the government’s faces a near-record budget deficit.

The Hang Seng China Enterprises Index slid 1.2 percent, led by China Construction Bank Corp. The country’s regulators were said to plan further tightening controls on funds flowing into property after Shanghai joined a growing list of cities to impose new curbs. Wagers for U.S. rate increase this year may also weigh on Hong Kong home sales due to a currency peg with the dollar.

Rand Slumps

The yield on Turkey’s 10-year sovereign bonds rose 11 basis points to 9.86 percent. The rate on similar-maturity South African securities jumped 24 basis points to 8.93 percent.

The premium investors demand to own emerging-market sovereign bonds over U.S Treasuries widened one basis point to 332, according to JPMorgan indexes and data compiled by Bloomberg.

The rand weakened 3.8 percent to 14.3617 per dollar. Gordhan will be charged with fraud related to his approval of the early retirement and subsequent reappointment on a contract basis of former colleague that resulted in a “fruitless” expenditure of 1.1 million rand, the prosecutor said. The finance minister has repeatedly clashed with Zuma, who had dismissed his request to fire the current tax chief and delayed his attempts to install a new board at the loss-making state airline.

Baht, Ruble

Thailand’s baht weakened 0.7 percent to a three-month low. The health of King Bhumibol Adulyadej is closely watched as he is revered by many for what they say has been his unifying presence during a seven-decade reign.

The ruble weakened 1.1 percent from a one-year high. Citigroup Inc. said the Russian currency is unlikely to benefit further from a deal among the members of the Organization of Petroleum Exporting Countries to curb output.

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