Amsterdam - Emerging-market stocks headed for their biggest four-day drop in a month as the Federal Reserve signaled it may raise interest rates in December and Chinese corporate earnings disappointed. Russia’s ruble slumped with oil.
The MSCI Emerging Markets Index fell 1.4 percent to 848.12 at 9:26 a.m. in London, the lowest level in three weeks. A gauge of 20 currencies decreased for a fifth day. The ruble lost 0.6 percent versus the dollar, while the South African rand weakened for a third day. Hong Kong’s Hang Seng China Enterprises Index sank 1.1 percent as China Life Insurance Company tumbled 5.4 percent after profit slumped.
The odds of a December liftoff in the U.S. rose to 48 percent, from 35 percent on Tuesday, Fed futures trading indicates, after the US central bank dropped a reference to global risks and asserted that economic growth remains “moderate.”
Speculation that the near-zero borrowing costs would be kept low for longer had spurred a 7.3 percent gain in the MSCI developing-nation stock gauge this month as investors sought higher returns among riskier assets.
“Expectations on a Fed rise got pushed from October-December out to March very quickly and now, suddenly, December is back on the agenda,” said Nathan Griffiths, who manages about $800 million in emerging-market stocks at NN Investment Partners in The Hague.
“Hot money that flowed in, as some investors tried to trade the Fed, is now flowing out quickly again. There is a very minute focus on when the Fed raises its reference rate precisely because growth fundamentals are so weak, particularly in emerging markets.”
Stock valuations
The MSCI developing-nations gauge has retreated 11 percent this year and trades at 11.2 times projected 12-month earnings, data compiled by Bloomberg show. That’s equal to the average valuation of the past 10 years. The MSCI World Index has decreased 0.4 percent in the period, and is valued at a multiple of 16.
Russia’s Micex Index lost 0.9 percent on Thursday, heading for its biggest decline since Oct. 16, while the South African benchmark dropped for a fourth day. MTN Group, Africa’s biggest wireless operator, fell 1.2 percent, extending its four- day decline to 19 percent in Johannesburg after the company said it faces a $5.2 billion fine from the Nigerian telecommunications regulator.
Equities in Hungary and Poland declined 0.6 percent and 1.2 percent respectively. The Hang Seng China Enterprises gauge posted its biggest three-day loss in a month. China Life Insurance dropped the most since Aug. 24 after a 74 percent slide in third-quarter profit.
The Shanghai Composite Index rose 0.4 percent. Around 67 percent of Shanghai-listed companies that have reported third- quarter results so far have trailed analysts’ forecasts, versus 52 percent for the MSCI Emerging Markets Index.
The two Chinese equity gauges have rebounded 11 percent this month after the government took measures to stabilize the mainland stock market following a $5 trillion rout and the economy.
Samsung Electronics rose 1.3 percent to a four-month high as the company looks to tap its $50 billion cash pile to buy back shares and invest in its components business after struggles in the smartphone division battered investors. South Korea’s Kospi Index lost 0.4 percent, its third day of declines.
Industry groups
All 10 industry groups in the emerging-stocks measure dropped, paced by consumer and materials shares. Gold Fields and AngloGold Ashanti tumbled more than 4 percent in Johannesburg and South African equities declined 1.1 percent on a weak outlook for commodities.
Saudi shares climbed 0.8 percent and Dubai equities added 0.8 percent, poised to halt a three-day slide.
“The only liquidity that really matters for EM assets is USD liquidity, as this has been the funding currency for debt and growth for so long,” Griffiths said, adding that further easing from the European Central Bank and the Bank of Japan would put more “upward pressure” on the dollar, affecting emerging markets negatively.
The premium investors demand to own emerging-market debt over US Treasuries was little changed at 390 basis points, according to JPMorgan Chase & Co indexes.
BLOOMBERG