Emerging Markets Extend Slide as Investors Weigh Trump’s Chances

  • Turkish assets lead losses as political crisis deepens
  • Stocks, currencies stay lower as U.S. data show jobs gains

Will Jobs Data Offer Fed Hike Clues Amid Election Angst?

Emerging-market stocks fell for a second week, sending valuations to a four-month low, as investors sought to hedge against the odds of a victory for Donald Trump in the U.S. presidential election.

With four days to go before the vote, the lack of a clear leader in polls raised the specter of protracted battles in swing states and market disruption if Trump prevails. The Republican candidate has pledged to review trade deals and crack down on immigration, which are seen as negative for the economy. Investors also weighed U.S. jobs data that showed an improvement in the labor market, adding to speculation the Federal Reserve will raise interest rates in December.

“People have started getting scared about possible election outcomes,” said Alexis Hombrecher, the founder of Whard Stewart UK LLP, a London-based hedge fund that specializes in emerging-market currencies and rates. “We’ve seen a massive risk reduction and a hedging of current positions.”

Top Movers

* Turkey’s stocks plunged the most in the world and the lira led losses among 24 emerging-market peers as the arrest of opposition leaders worsened a political upheaval.

* The main gauge for Czech stocks had the worst retreat since August amid concern that the nation’s biggest companies will cut dividend

* South African stocks fell to the lowest level since February and the rand trimmed a weekly gain as concern over the U.S. election and Fed policy overshadowed a thaw in the domestic political crisis.

* The Mexican peso, seen as the currency most vulnerable to losses if Trump wins, was poised for a second week of declines.

* Brazil’s real gained, reversing earlier losses, and a measure of currency volatility surged as investors chose prudence over risk ahead of U.S. presidential elections. Stocks fell.

* Investors turned the most bearish since Aug. 5 on developing-nation Eurobonds, boosting the premium the demand to own the securities over U.S. Treasuries.

* U.S. payrolls climbed by 161,000 last month following a 191,000 gain in September that was larger than previously estimated, a Labor Department report showed Friday. The figures may keep the Fed on track to raise borrowing costs next month for the first time in 2016.

Stocks

The MSCI Emerging Markets Index of equities fell for a fourth day, slipping 0.5 percent to 880.12 on Friday. The measure traded at 12.1 times the projected earnings of its members, the lowest price-earnings ratio since July 11. All 11 industry groups dropped, with health-care companies posting the biggest losses.

The Borsa Istanbul 100 Index slid 3.2 percent to a three-month low after police rounded up pro-Kurdish opposition leaders, prompting investor concern that an increasingly autocratic government is dismantling democracy in the country.

The PX Index in Prague retreated 1.7 percent, led by a 6.1 percent plunge in Erste Group Bank AG. Chief Executive Officer Andreas Treichl said it’s too early to give precise guidance for dividend payout beyond 2016. His statement added to investor concern that companies will pare cash rewards to shareholders as they preserve funds. Komercni Banka AS fell for the week after saying it intends to reduce the payout ratio to about 55 percent of 2016 consolidated net income from 92 percent a year earlier.

Currencies

Watch Next: Will EM Volatility Unlock Investor Appetite?

The MSCI Emerging Markets Currency Index declined 0.2 percent.

The lira fell 1.5 percent. A crackdown on the opposition following a failed coup in July and a slowdown in the economy have hurt sentiment, making it the worst performing emerging-market currency over the last three months.

South Korea’s won dropped after President Park Geun-hye said she’s willing to be questioned by prosecutors over an influence-peddling scandal.

Bonds

The premium investors demand to own emerging-market sovereign debt over Treasuries widened four basis points to 350, according to JPMorgan Chase & Co. indexes.

Mozambique had its credit grade cut to CC by S&P Global Ratings as the rating company says the southern African nation’s plan to restructure $1.73 billion of commercial loans is “tantamount to default.”

Yields on Mozambique’s Eurobonds, due in January 2023, fell 51 basis points to 22.88 percent. They soared by more than 560 basis points from 15.24 percent on Oct. 25 after the government made its investor presentation.

— With assistance by Lilian Karunungan, Ian C Sayson, and Elena Popina

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE