BLBG: Emerging-Market Sentiment Turns More Bearish With Oil Price Drop
Equities and currencies head for worst year since 2011, 1997
Russia's ruble leading losses in emerging-market currencies
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Sentiment for emerging-market assets is turning more bearish with oil below $40 a barrel and lingering concerns that the slowdown in China will affect global growth even as the U.S. economy gains steam.
Measures of developing-nation stocks and currencies fell for a third day, and are set for the biggest annual losses since 2011 and 1997. Chinese shares traded in Hong Kong led declines in Asia on Wednesday, while the offshore yuan dropped to a five-year low on speculation the central bank will favor depreciation to help revive the slowest growth in more than two decades.
“Weak oil is seen as symptomatic of weak global growth and there is an increasing realization that next year is going to be tough,” said Tony Hann, the head of equities at Blackfriars Asset Management Ltd. in London, who avoids energy stocks in favor of consumer-oriented assets. “A number of markets are closed tomorrow, so there is little appetite for traders to buy today.”
There is no trading in Russia, the Czech Republic, Hungary and South Korea on Thursday.
The MSCI Emerging-Markets Index dropped 0.5 percent to 795.72 as of 10:51 a.m. in London, set for an annual loss of 17 percent, while a gauge tracking 20 developing-nation currencies lost 0.2 percent, heading for a 14 percent loss this year.
Nine out of ten industry groups in the emerging stocks index fell, with financial and energy shares leading declines, as Brent crude fell 1.6 percent to $37.18 a barrel in London. Shares in Russia and Turkey lost at least 0.2 percent.
Russia’s ruble weakened 1.1 percent against the dollar, leading losses in emerging currencies tracked by Bloomberg, followed by a 0.6 percent slide by the South African rand. All of the 24 emerging-market currencies tracked by Bloomberg have dropped this year except the Hong Kong dollar and the outlook doesn’t look much brighter in 2016, with 20 forecast to decline as rising U.S. interest rates spur capital outflows.
“Markets can quite clearly see that there doesn’t seem to be a durable positive impulse from the wider commodity markets, in particular oil,” said Vishnu Varathan, Singapore-based economist at Mizuho Bank Ltd. “With the slightly firmer U.S. confidence data, it’s a gentle reminder that the Fed may not be done hiking."
The world’s two-biggest economies are diverging, with China’s slowdown curtailing demand for commodities, while rebounding U.S. consumer confidence reaffirms the Federal Reserve’s case for monetary tightening next year.China’s 10-year bonds dropped the most in two weeks on Wednesday, with the yield rising to 2.85 percent. It reached 2.8 percent on Dec. 28, the lowest for a benchmark of that maturity since 2009. A Bloomberg gauge of emerging-market local sovereign debt has lost 1.9 percent in dollar terms this year, compared with a 0.7 percent gain for U.S. Treasuries.
The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong slid 1.3 percent on Wednesday and is down by the same amount this month. The offshore yuan in Hong Kong depreciated to a five-year low of 6.6105 a dollar after China’s central bank cut the onshore daily reference rate to the weakest since 2011.
Investors will be closely watching Chinese manufacturing and services data on Friday for any signs the economy gathered strength in December.
The premium investors demand to own emerging-market debt over U.S. Treasuries has widened one basis point to 409, according to JPMorgan Chase & Co.indexes. The MSCI Emerging-Markets Index is currently valued at 11 times its 12-month estimated earnings, a 31 percent discount to the MSCI World Index, which lost 1.4 percent this year.
