Emerging Stocks Drop as Brazil Decline Outweighs Commodity Gains

  • Consumer companies lead Ibovespa drop on interest rate outlook
  • Raw-material shares advance to highest level in two months

Most emerging-market stocks retreated as Brazilian consumer companies slumped on prospects for a slower-than-expected reduction in borrowing costs, outweighing gains in commodity producers from South Africa to China.

More than 470 stocks on the MSCI Emerging Markets Index fell while about 300 advanced. The benchmark gauge fell less than 0.1 percent to 918.25. The Ibovespa retreated 0.3 percent in Sao Paulo after the central bank signaled moderate interest-rate cuts in coming months that surprised many economists who had expected a faster reduction. A gauge of developing-nation raw-material stocks jumped to the highest level since August as growing signs of resilience in the global economy boosted the outlook for commodity producers.

The MSCI emerging-market equity gauge has risen in four of the last six sessions and is trading within 1 percent of this year’s high in September. Historical 30-day volatility in the benchmark has fallen to around the lowest level in six week as traders have become increasingly convinced that the Federal Reserve will move slowly in raising U.S. interest rates next year, helping keep money flowing to higher-risk assets in developing nations.

“The big thing today is Brazil,” said Neil Shearing, chief emerging markets economist at Capital Economics Ltd., “I think the market had gotten ahead of itself pricing in rate cuts, and that’s feeding through.”

Brazilian companies that depend on domestic demand were among the worst performers. Hypermarcas SA, which makes products ranging from over-the-counter drugs to diapers, fell the most, tumbling 5.1 percent. Lender Banco do Brasil SA declined 2.4 percent. Education company Estacio Participacoes SA also slid 3 percent.

South Korea’s Kospi Index led declines in Asia, retreating 0.5 percent. The nation’s assets retreated as a central-bank report showed exports were a drag on economic growth last quarter.

Commodity Gains

Consumer staples companies declined the most among the industry groups in the MSCI Emerging Markets Index, falling 1.2 percent. Mining company Impala Platinum Holdings Ltd. helped push a gauge of raw-material stocks to an eighth consecutive advance, rallying 4.9 percent.

Alrosa PJSC, a Russian diamond miner, rose 1.3 percent in trading volume was 1.5 times the three-month average. United Co. Rusal climbed 1.7 percent as billionaire Viktor Vekselberg told Rossiya 24 channel he believes in the aluminum producer and hopes to increase his stake in the company soon, without elaborating.

Saudi Arabia’s Tadawul All Share Index added 1.5 percent, gaining for a fifth day in the winning streak in a year. The Arab world’s largest economy sold the biggest ever foreign bond last week and vowed to increase payments to contractors, sparking a stock rally that boosted the market capitalization of the exchange by about $12 billion.

Taiwan’s Taiex climbed 0.7 percent to the highest level since June 2015, following gains in global technology shares before Apple Inc. reports earnings.

The MSCI Emerging Markets Currency Index rose 0.1 percent, extending Monday’s 0.2 percent advance. The South African rand strengthened 1 percent, the biggest gain in developing nations, while Chile’s peso was the second-best performer, adding 0.9 percent in its third day of gains.

The South Korean won dropped 0.2 percent.

The yuan traded offshore touched 6.7885, the weakest intraday level in data going back to 2010. Concern that China will allow the yuan to keep weakening put downward pressure on other Asian currencies.

The premium investors demand to own emerging-market sovereign bonds over U.S. Treasuries widened two basis points to 330, according to JPMorgan Chase & Co. indexes.

— With assistance by Harry Suhartono, Jung Park, and Maria Levitov

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