London - Emerging-market stocks and currencies fell, extending last week’s retreat, as investors speculated the 2016 rally has stalled amid concern over China’s economic slowdown.
Equities in the Middle East declined the most in the world as companies from Emirates NBD PJSC to Alinma Bank reported earnings that missed analysts’ forecasts. Chinese shares denominated in US dollars dropped the most in nine months on concern the yuan will depreciate further. Turkish bond yields headed for an almost three-month high and the lira weakened the most in emerging markets on speculation a rate cut expected Thursday may be bigger than previously forecast.
JPMorgan Chase & Company downgraded emerging-market stocks to neutral from overweight, citing “an opportunity to book in some profits.” Investors’ appetite for risk has diminished with the futures market indicating a two-thirds probability of a US interest-rate hike in December and Republican candidate Donald Trump pledging to renegotiate trade deals if he wins the November 8 presidential elections. China’s third-quarter gross domestic product data will be closely watched on Wednesday after exports fell in September.
“There is a bit of caution ahead of the last US presidential debate and concerns about how much growth is slowing in China,” said Per Hammarlund, the chief emerging-market strategist at SEB in Stockholm, who favours ruble bonds and the Brazilian real. “Investors are waiting for a new catalyst to restart the rally, which has stalled.”
Trump will face Democrat Hillary Clinton in the third and final presidential debate on Wednesday, as part of an acrimonious campaign that has made investors nervous over America’s future relationship with the world, including deals such as the North American Free Trade Agreement.
The MSCI Emerging Markets Index slid 0.6 percent to 892.05 at 11:37 a.m. in London, paring its gains this year to 12 percent. The currencies gauge fell 0.4 percent, trimming its 2016 rally to 5.3 percent.
Yet most investors including JPMorgan point to improving outlook for emerging markets in the medium term. US exchange-traded funds that invest in developing nations witnessed inflows for a 20th successive week, adding $23.5 billion cumulatively.
-With assistance from Liau Y-Sing and Choong En Han.
BLOOMBERG