Emerging Stocks Slide to Seven-Week Low as U.S. Race Tightensby
Peso drops for second day; yield premium for EM debt rises
Fed leaves rate on hold while sets up possible December move
The Trump factor reverberated through emerging markets, sending Mexico’s peso to the lowest level in over a month and stocks to their biggest decline in more than three weeks.
Investor appetite for riskier assets fell in the wake of polls showing Donald Trump and Hillary Clinton neck and neck in the U.S. election race. Polish and South Korean equities dropped and the premium for developing-nation debt over Treasuries increased. South Africa’s rand bucked the trend after the High Court ordered publication of a graft report amid increasing pressure for President Jacob Zuma to resign.
Declines in developing-nation assets reflected concern that Trump as president would scrap trade deals and penalize U.S. companies that manufacture products overseas. A Bloomberg poll on Wednesday showed Clinton holding a slim advantage over Trump among independents, a day after an ABC News/Washington Post tracking poll gave the Republican nominee a one-percentage point lead over his Democrat rival.
“Everyone is focusing on the U.S. election because of yesterday’s poll,” said Patrick Mange, an emerging-market strategist at BNP Paribas Asset Management in Paris, who recommends buying stocks in Russia and China. “Investors are getting more risk-off after the outperformance of emerging markets earlier this year. Trump would be more detrimental for emerging markets because of all of his talk of protectionism.”
Central bankers in the U.S. left interest rates unchanged while adding that “the case for an increase in the federal funds rate has continued to strengthen,” according to a statement from the Federal Open Market Committee on Wednesday following a two-day meeting in Washington. The decision to forgo a rate increase had been widely expected owing to the proximity of next week’s U.S. presidential election and the lack of a scheduled press briefing after this meeting.
The MSCI Emerging Markets Index of shares dropped 1.4 percent to 890.21, the lowest since Sep. 16. The gauge has fallen 4 percent from this year’s high in September. Local markets in Brazil and Mexico are closed for public holidays.
The Philippines benchmark index helped lead losses, sliding 2.1 percent. South Korea’s Kospi index of shares retreated for a fourth day after President Park Geun-hye replaced her prime minister and finance chief in a bid to shore up support from her core backers.
Polish stocks fell 2.6 percent, the most since June, after the Purchasing Managers Index missed estimates.
Egyptian stocks rose 0.9 percent to a 16-month high as the government delayed the introduction of a capital gains tax on equities for three years.
The MSCI Emerging Markets Currency Index slid 0.2 percent. The rand led gains among developing currencies. The High Court ordered the publication of a report that threatens to expose alleged graft linked to Zuma’s relationship with a wealthy family and as thousands gathered in Pretoria, the capital, to protest state corruption.
Mexico’s peso weakened for a second day, losing 0.9 percent. The currency slumped 1.8 percent on Tuesday, the biggest decline in almost four months, after the ABC tracking poll.
The Russian ruble weakened 0.3 percent as Brent crude fell for a fourth day to $46.86 a barrel, the lowest level in five weeks.
Russian government bonds fell, lifting yields on 10-year notes by six basis points to the highest since July, reducing the inversion between the country’s longer-dated and short-term notes as a policy maker said rates are now more in line with central bank policy.
The extra yield investors demand to own emerging-market debt over Treasuries widened to 348 basis points, increasing for a seventh day, according to JPMorgan Chase & Co. indexes.