Bangkok - Emerging-market stocks fell after reaching the highest valuations in a year and currencies weakened as investors speculated that gains driven by dovish signals from the Federal Reserve were overdone.
Russian stocks retreated the most this month as the country’s biggest retailer reported a slowdown in sales growth. Equity gauges across emerging Europe slid and South African shares dropped to the lowest level in a week. Markets in China, Hong Kong and Taiwan were closed for holidays. Russia’s ruble weakened from the highest level since November after Bank of America recommended selling the currency before an interest-rate decision on Friday. South Africa’s rand and the Mexican peso also weakened.
Emerging markets rallied in the past week as dismal US jobs data curbed bets for a U.S. interest-rate increase any time soon, while gains in oil and signs that China’s economy is on the mend underpinned demand for riskier assets. The benchmark index’s 14-day relative-strength index rose above 70 on Wednesday, a level that sometimes precedes a decline. The currency gauge was also close to that threshold.
“There is a feeling in the market that the rally went too far,” Guillaume Tresca, a senior emerging market-strategist at Credit Agricole CIB in Paris, who recommends selling the rand. “This kind of consolidation should continue in the next two days.”
Read also: Rand stumbles after economic data
The MSCI Emerging Markets Index slid 0.5 percent to 838.33 at 12:25 p.m. in London after a 4.4 percent gain in the previous five days. The measure has advanced 5.6 percent this year and trades at 12.2 times its projected 12-month earnings. That’s a 25 percent discount to the valuation for the MSCI World Index of developed-nation equities.
Stocks
Russia’s Micex index fell 1 percent, the most since May 31. Magnit PJSC lost 3.4 percent after saying sales growth decelerated to 9.6 percent in May, from 17 percent in the first quarter and almost 25 percent last year.
Polish, Czech and Hungarian indexes slid at least 0.8 percent each. The FTSE/JSE Africa All Share Index in Johannesburg retreated 0.8 percent to the lowest level since June 2.
The Philippine Stock Exchange Index tumbled the most since January.
“Equity prices are at the level of valuations that are exposed to possible profit taking,” Isara Ordeedolchest, an investment strategist at SCB Securities said from Bangkok.
MSCI is reviewing whether to add mainland-traded Chinese stocks to its global indexes and the results will be unveiled on June 14.
Currencies
The MSCI Emerging Markets Currency Index slipped 0.1 percent.
The ruble weakened for the first time in six days, falling 0.8 percent to 64.1425 versus the dollar, as Bank of America strategists forecast a depreciation to 65 per dollar after June. The Bank of Russia is projected to cut its benchmark interest rate to 10.5 percent on Friday.
South Africa’s rand dropped 0.8 percent and Mexico’s peso retreated 0.6 percent, the most in a week. The Hungarian forint weakened 0.3 percent against the euro, the worst performance among peers.
Bonds
The premium investors demand to own emerging-market debt over US Treasuries widened three basis points to 385, according to JPMorgan Chase & Co indexes.
Russian bonds retreated, with the yield on five-year notes climbing five basis points to 9.07 percent, the first advance in five days.
-With assistance from Ian Sayson and Liau Y-Sing.
BLOOMBERG