Emerging-Market Stocks Drop as Fed Outlook Outweighs Oil Rally

  • Investors look ahead to U.S. payrolls data due Friday
  • Brazil’s stocks, real slide amid concern over political risk

A Deep Dive Into Emerging Markets

Emerging-market equities fell for the second time in three days as concern that higher U.S. interest rates will diminish demand for riskier assets in developing nations outweighed a rally in energy stocks after OPEC ministers agreed to cut production.

The MSCI Emerging Markets Index declined 0.5 percent to 858.41. Consumer-staples stocks led declines as eight of the benchmark’s 11 industry groups retreated. Brazilian stocks fell the most in the world and the real weakened amid speculation that economic reforms may be derailed by fresh turmoil. Shares in the Gulf and Russia, the world’s top energy exporter, advanced as Brent crude sold for the highest price since August 2015. The Shanghai Composite Index rose after China’s official factory gauge reached the highest since July 2014.

While the oil deal provides a reprieve for equities following their worst monthly rout since January, higher crude prices and U.S. President-elect Donald Trump’s spending policies are bolstering expectations for a pickup in inflation and the pace of Federal Reserve interest-rate increases. Investors will focus on Friday’s official U.S. payrolls data after ADP Research Institute reported the biggest increase in private-sector workers since June.

“Crude oil is a gauge of risk sentiment so when you get prices going up, emerging markets tend to do better,” said Patrick Mange, an emerging-market strategist at BNP Paribas Asset Management in London, who recommends buying Russian and Chinese equities. “There’s still a lot of uncertainty in the market around what’s going to happen once the president-elect becomes president.”

Stocks

  • Brazil’s Ibovespa tumbled 3.9 percent, the most among 94 primary equity gauges tracked by Bloomberg
  • The MSCI Emerging Markets Energy Index rallied 1.3 percent
  • Saudi Arabian shares climbed 1.3 percent to the highest since December 2015
  • Russia’s Micex index advanced 0.8 percent, adding to Wednesday’s 0.9 percent gain; the largest exchange-traded fund invested in the nation’s stocks had its biggest monthly inflow in a year last month
  • The Shanghai Composite advanced 0.7 percent and Hong Kong’s Hang Seng China Enterprises Index rose 0.6 percent

Currencies, Bonds

  • The MSCI Emerging Markets Currency Index retreated 0.2 percent, following a 2.6 percent drop in November
  • The real slid 2.4 percent amid concern about rising political tension after lawmakers in Brazil’s Lower House altered some anti-corruption measures late Wednesday
  • The Russian ruble strengthened 0.3 percent
  • Turkey’s lira retreated 1.9 percent toward a record low closing level against the dollar on the risk that higher oil prices will push up the country’s import bill 
  • The premium investors demand to own developing-nation government bonds over U.S. Treasuries was unchanged at 360 basis point, according to JPMorgan Chase & Co. indexes

— With assistance by Tang Nguyen

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