Emerging-Market Equities Post Biggest Drop in Three Weeks

  • Currencies trim decline after release of U.S. jobs data
  • Investors await Italy’s constitutional referendum, S&P reviews

A Deep Dive Into Emerging Markets

Emerging-market stocks posted their biggest drop in three weeks amid concern higher U.S. interest rates will damp demand for riskier assets.

The MSCI Emerging Markets Index extended declines to a second day, falling 0.6 percent, as Fed funds futures signal growing bets the Federal Reserve will follow an interest-rate increase this month with additional moves next year. A gauge of emerging-market currencies rose 0.1 percent after an earlier 0.4 percent decline as a mixed picture of the U.S. labor market weighed on the dollar. Poland’s zloty strengthened as S&P Global Ratings raised the outlook on the government’s debt to stable from negative. Investors are awaiting an Italian vote on a constitutional referendum this weekend.

“Given heightened expectations, the only slightly softer than forecast headline U.S. non-farm payroll print has hit the dollar, especially as October’s print was revised lower and average earnings also missed forecasts,” said Christopher Shiells, a senior emerging-market analyst at Informa Global Markets in London. “The only upside to the data was the unemployment rate.”

Italians will vote on a referendum called by Prime Minister Matteo Renzi on Dec. 4.  Renzi is trying to push through changes to the nation’s constitution which he says are needed to move the country forward.

“Demand for risky assets is unlikely to improve if Italians reject constitutional reforms,” said Piotr Matys, an emerging-market currency strategist at Rabobank in London. “A no-vote is likely to be interpreted as yet another protest vote against the establishment ahead of crucial elections in France, the Netherlands and Germany next year.”

Stocks

  • The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong dropped 1.1 percent
  • The Shanghai Composite Index lost 0.9 percent, set for the worst week since 5 days to Sept. 30
  • The S&P BSE Sensex Index dropped 1.2 percent
  • The Ibovespa gained 1.4 percent in Sao Paulo

Currencies, Bonds

  • The premium investors demand to hold emerging-market bonds versus Treasuries set to climb for third week, ending it at 366 basis points
  • The zloty increased 0.1 percent against the euro; S&P kept Poland’s debt rating at BBB+, the third-lowest investment grade, and said the strength of the economy is offsetting risks stemming from increased government spending
  • South Africa’s rand gained 2.1 percent, erasing its decline for the week; S&P left its assessment of the nation’s foreign-currency debt unchanged at one level above junk, while lowering its local-currency rating and warning that political interference in fiscal policy could lead to a downgrade
  • Turkey’s lira fell as President Recep Tayyip Erdogan renews push for lower rates
  • South Korea’s 10-year bond yield climbed six basis points to 2.27 percent, South Africa’s 10-year yield declines 6 basis points to 9.05 percent
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