Emerging-Market Stocks Retreat as Turkey Plunges on Corruption

Dec 19, 2013 1:01 pm ET

Dec. 19 (Bloomberg) -- Emerging-market stocks fell to the lowest in a month as Turkey’s corruption crisis weighed on the nation’s shares and Chinese equities retreated on concern higher funding costs will hurt growth.

Turkey’s shares slid the most in the world as the government removed Istanbul’s police chief amid a corruption probe. The Hang Seng China Enterprises Index lost 1.7 percent on concern higher funding costs will hurt growth. All but two emerging-market currencies tracked by Bloomberg weakened, led by the Brazilian real. The Micex added 0.7 percent as President Vladimir Putin said a decree pardoning Mikhail Khodorkovsky will be signed soon. Brazil’s Ibovespa climbed to a one-week high.

The MSCI Emerging Markets Index retreated 0.4 percent to 989.01 at 12:41 p.m. in New York. The Federal Reserve said yesterday it will cut its monthly bond purchases to $75 billion from $85 billion amid an improved outlook for the job market in the world’s largest economy, while pledging to hold interest rates close to zero. China’s seven-day repurchase rate, a gauge of funding availability in the banking system, posted its biggest jump yesterday since a record cash crunch in June.

“The market is still trying to digest the implications of a reduction in asset purchases, combined with looser forward guidance,” Abbas Ameli-Renani, London-based emerging-market strategist at Royal Bank of Scotland Group Plc, said by e-mail. “The broader picture remains strategically unchanged and the market can now move on.”

Stock Valuations

The iShares MSCI Emerging Markets Index exchange-traded fund slumped 2 percent to $40.48. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, rose 1.5 percent to 21.48.

Nine out of 10 industry groups in the MSCI Emerging Markets Index slipped, led by industrial and consumer-discretionary companies. The broader measure has lost 6.3 percent this year, compared with a 21 percent advance in the MSCI World Index. The developing-country index trades at 10.4 times projected 12-month earnings, lower than the MSCI World’s multiple of 14.5.

The Fed has said it will keep buying bonds until the outlook for the labor market has “improved substantially.” Bernanke said yesterday the program was on its way to meeting that test, as the jobless rate fell to a five-year low of 7 percent in November.

Turkey Arrests

Data from the U.S. Labor Department today showed applications for unemployment benefits unexpectedly rose last week to an almost nine-month high. Jobless claims climbed by 10,000 to 379,000 in the period ended Dec. 14, the most since the end of March. The median forecast of 48 economists survey by Bloomberg called for a decrease to 336,000.

Turkey’s Borsa Istanbul National 100 Index slumped 3.2 percent, the most on a dollar basis among 94 global equity indexes tracked by Bloomberg. The lira depreciated 0.8 percent versus the dollar, set for the weakest close on record.

Yeni Safak newspaper reported 31 police officials were removed from their posts as Prime Minister Recep Tayyip Erdogan said those carrying out corruption investigations were trying to create “a state within a state.” Istanbul police chief Huseyin Capkin was among the people who were dismissed after relatives of cabinet ministers, as well as the head of Turkiye Halk Bankasi AS, were detained.

Billionaire Imprisoned

The Ibovespa climbed 1 percent as Rossi Residencial SA led real-estate companies higher while Cia. Hering was the best performer among retailers. Brazil’s jobless rate fell to 4.6 percent in November, compared with the average forecast of 4.9 percent among economists surveyed by Bloomberg.

The real depreciated 0.9 percent after the central bank reduced the amount of foreign-exchange swaps that it will offer in 2014 to support the currency and limit import price increases.

The Micex’s advance was led by Sberbank of Russia, the nation’s biggest lender. Khodorkovsky, once the country’s wealthiest man, has served almost 11 years in prison after convictions for tax evasion, money laundering and oil embezzlement. His case became a symbol of concerns surrounding the rule of law in Russia.

South Africa’s FTSE/JSE Africa All Shares Index surged 0.9 percent after Fitch Ratings Ltd. affirmed the nation’s creditworthiness and kept the outlook at stable.

The premium investors demand to own emerging-market debt over U.S. Treasuries fell six basis points, or 0.06 percentage point, to 312 basis points, JPMorgan Chase & Co. indexes show.

Won Slides

The won weakened 0.9 percent against the dollar, the most since July 31. South Korea will monitor the market reaction to the Fed’s decision to trim bond purchases by $10 billion from January, Finance Minister Hyun Oh Seok said at a meeting in Seoul. Hungary’s forint dropped 0.3 percent against the euro, the second-biggest drag among emerging Europe and Africa peers.

The Malaysian ringgit weakened for a seventh day while the Indonesian rupiah depreciated to 12,239 per dollar, a five-year low, after Deputy Finance Minister Bambang Brodjonegoro said yesterday Southeast Asia’s largest economy will revise its currency estimate in its 2014 budget.

The Thai baht touched its lowest since Sept. 6, as anti- government protesters said they plan to march around Bangkok in a campaign to attract supporters before a rally on Dec. 22 to force Prime Minister Yingluck Shinawatra to relinquish office.

The Shanghai Composite Index slipped 1 percent, capping the longest losing streak since June. India’s S&P BSE Sensex and the Philippine Stock Exchange Index dropped at least 0.6 percent.

--With assistance from Nguyen Kieu Giang in Hanoi and Taylan Bilgic in Istanbul. Editors: Zahra Hankir, Tal Barak Harif