Emerging-market stocks capped the biggest weekly drop in six as tension in Ukraine escalated. The ruble and Russian bonds slid after a surprise interest-rate increase failed to offset a Standard & Poor’s rating cut.
Yields on Russian bonds maturing in 2027 climbed to a six- week high as Bank Rossii raised its one-week auction rate to 7.5 percent from 7 percent. The ruble lost 0.7 percent versus the dollar, while the Micex Index sank for a fifth day. Stocks in Turkey, China and South Korea declined at least 1 percent. Taiwan Semiconductor Manufacturing Co. led the Taiex Index to a 1.9 percent slump as a technology gauge fell from a record.
The MSCI Emerging Markets Index sank 0.9 percent to 995.33 at 1:55 p.m. in London, the lowest since April 1. The gauge has fallen 1.6 percent this week on concern over China’s economic slowdown and as a truce to ease tension in Ukraine unraveled. Russia’s sovereign-debt rating was cut to the lowest investment grade at S&P, with a negative outlook.
“What we’re seeing now is a pretty permanent exodus from Russia and it will be very difficult for the Russian central bank to fight it, because a consequence of this is a further drop in economic activity,” Lars Christensen, chief emerging- market analyst at Danske Bank Danske Bank A/S in Copenhagen, said by phone. “It’s very clear that the central bank is very much between a rock and a hard place; they frankly seem quite desperate in their actions.”
Russia’s rate decision was a surprise to 22 of 23 economists in a Bloomberg survey who forecast no change. The move came after S&P cut the country’s rating to BBB- from BBB, the first downgrade since December 2008. Economic growth in Russia is set to slow to 1 percent this year, the lowest since a contraction in 2009, according to the median of 40 forecasts compiled by Bloomberg.
The ruble, the second-worst performing currency among developing nations this year after the Argentinian peso, fell to 36.0295 per dollar. The Micex Index sank as much as 1.7 percent, before trimming losses to 0.9 percent.
U.S. Secretary of State John Kerry warned that Russia is running out of time to comply with an accord to ease tensions in Ukraine. OAO Gazprombank executives are preparing Russia’s third-largest lender for possible sanctions as the Obama administration considers its response to escalating pressure in Ukraine, according to two people with knowledge of the deliberations.
The emerging-markets gauge has fallen 0.8 percent this year and trades at 10.4 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has gained 1.2 percent in the period, and is valued at 14.8 times.
All 10 industry groups in the developing-nation gauge dropped, led by technology and consumer-discretionary companies. The Taiex tumbled the most in 11 weeks on concern the opening of a planned nuclear plant will be delayed.
China Petroleum and Chemical Corp. dragged the Hang Seng China Enterprises Index to a one-month low after fellow refiner PetroChina Co. reported a profit decline. The Shanghai Composite Index slid 1 percent as the nation’s biggest liquor maker reported slowing profit growth.
The yuan sank to the lowest level since October 2012 on signs a slowdown in the world’s second-largest economy is deepening. South Korea’s Kospi Index lost 1.3 percent.
The premium investors demand to own emerging-market debt over U.S. Treasuries rose 0.02 percentage point to 295 basis points, according to JPMorgan Chase & Co.