Emerging Markets Decline on Growth Concern as 2016 Rally Stalls

  • Attention turns to Chinese GDP after disappointing export data
  • Middle East stocks drop amid disappointing corporate earnings

Emerging-market stocks and currencies fell for the fourth time in five days as traders bet this year’s rally is faltering amid worse-than-forecast corporate earnings, concern about China’s slowing economy and the prospect of higher U.S. interest rates.

Equities in the Middle East led global declines as companies from Emirates NBD PJSC to Alinma Bank reported disappointing profits. Chinese shares denominated in U.S. dollars dropped the most in nine months on speculation the yuan will depreciate further. South African bonds fell for the first time in four days. South Korea’s won was the worst-performing currency. The Ibovespa rose to the highest level since early 2013 as Brazil’s President expressed confidence that the nation’s recovery will start in the last quarter of this year.

Developing-nation stocks and currency indexes have each 1 percent this month after a report showed Chinese exports tumbled in September, sharpening the focus on Wednesday’s gross domestic product data. JPMorgan Chase & Co. and Pictet Asset Management downgraded stocks to neutral from overweight, citing China and global risks. Demand for higher-yielding assets diminished with traders indicating a more than two-thirds probability of a U.S. interest-rate increase in December and as investors await the final presidential debate on Wednesday.

Stalled Rally

“There is a bit of caution ahead of the last U.S. presidential debate and concerns about how much growth is slowing in China,” said Per Hammarlund, the chief emerging-market strategist at SEB SA in Stockholm, who favors ruble bonds and the Brazilian real. “Investors are waiting for a new catalyst to restart the rally, which has stalled.”

Republican candidate Donald Trump will face Democrat Hillary Clinton in the third debate Wednesday, as part of an acrimonious campaign that has made investors nervous over America’s future relationship with the world, including deals such as the North American Free Trade Agreement.

The MSCI Emerging Markets Index slid 0.3 percent to 894.71, reducing Its gain this year to 13 percent. A measure of developing-nation exchange rates fell 0.2 percent, trimming its 2016 rally to 5.5 percent. Many investors, including JPMorgan, still point to an improving outlook for emerging markets in the medium term. U.S. exchange-traded funds that invest in developing nations witnessed inflows for a 20th successive week, adding $23.5 billion cumulatively.

Stocks

Abu Dhabi’s benchmark gauge fell 2.2 percent, for the lowest level since May. The Dubai measure dropped for a fourth day, while the Tadawul All Share Index in Riyadh slid more than 1 percent for a second successive day. Emirates NBD PJSC reported third-quarter profit that missed analysts’ estimates as the United Arab Emirates’ biggest bank was hurt by bad loan provisions at its Islamic unit. Alinma Bank’s third-quarter profit also fell because of provisions.

The Shanghai Stock Exchange B Share Index, denominated in U.S. dollars, fell 6.2 percent amid concern that the yuan will further depreciate against the U.S. dollar.

The Ibovespa advanced 1.5 percent. Brazil is beginning to get back on track as the expectations of investors and consumers rebound, Temer said at a summit over the weekend. Brazilian stocks have climbed 76 percent in dollar terms this year on bets that the new government, which replaced impeached Dilma Rousseff in August, will succeed in restoring growth.

Currencies, Bonds

South Korea’s won, Malaysia’s ringgit and the Taiwanese dollar each fell more than 0.3 percent percent lower against the dollar.

The Turkish lira fell 0.2 percent as investors awaited the central bank’s announcement on its interest-rate policy on Thursday. Brazil’s real advanced 0.1 percent.

South African government bonds due 2026 fell, pushing the yield up three basis points to 8.86 percent. The political struggle between President Jacob Zuma and Finance Minister Pravin Gordhan intensified amid fresh allegations.

The premium investors demand to own emerging-market sovereign debt over U.S. Treasuries widened four basis points to 339, according to JPMorgan & Co. indexes.

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