Emerging Stocks Extend Worst Slump Since 2009 as Currencies Sink

Jan 24, 2014 5:14 pm ET

Jan. 24 (Bloomberg) -- Emerging-market stocks fell, extending the worst start to a year since 2009, as currencies tumbled and concern grew that China’s economy will falter.

The MSCI Emerging Markets Index dropped 1.5 percent to 949.90, extending this year’s slump to 5.3 percent. Benchmark equity gauges from Poland to South Africa and Brazil retreated at least 1.1 percent, while 18 out of 24 developing-nation currencies tracked by Bloomberg declined. Ukraine’s bond yields jumped to the highest level since before the nation secured a bailout last month from Russia as the European Union warned anti-government protests could escalate into a civil war.

Argentina scrapped some of its currency controls a day after devaluing the peso, while Turkey’s lira sank after the central bank’s unscheduled intervention failed to stem its drop yesterday. Yuan forwards had the worst week since June after a private report showed manufacturing in China unexpectedly contracted. China’s banking regulator ordered its regional offices to increase scrutiny of credit risks in the coal-mining industry, said two people with knowledge of the matter, signaling government concern about possible defaults.

“The weakness in China is a global concern and that’s why you see global markets being weak,” Timothy Ghriskey, who oversees $1.5 billion as the chief investment officer at Solaris Group LLC, said by phone from New York. “The recent economic data from China is pretty disappointing. Argentina is not the biggest market, but there is also a lot of concern associated with it.”

Biggest Losses

All 10 groups in the emerging-market gauge fell, led by health-care and consumer companies. The iShares MSCI Emerging Markets Index exchange-traded fund decreased 2.6 percent to $38.24. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, climbed 21 percent to 28.26.

Brazil’s Ibovespa decreased to its lowest level in five months, led by state-run oil producer Petroleo Brasileiro SA. The peso dropped 1.5 percent to 8.0014 per dollar at 3:34 p.m. in Buenos Aires, extending its plunge this week to 15 percent, the worst selloff since a devaluation that followed the country’s record sovereign default in 2001.

Russian equities dropped for a third day as the ruble slumped to the lowest level in almost five years, pushing down OAO Sberbank shares as crude oil fell. Poland’s WIG20 index slid the most since Sept. 5, while benchmark gauges in Hungary and Turkey retreated at least 1.5 percent.

Ukraine Bonds

The yield on Ukraine’s dollar debt due in April 2023 rose 18 basis points, or 0.18 percentage point, to 9.55 percent by 6:55 p.m. in Kiev, the highest since Dec. 16, a day before Ukraine secured the rescue loan. It is up 123 basis points this week, the most on record for the period, data compiled by Bloomberg show.

China’s benchmark stock index rose to the highest level in three weeks as money-market rates fell. Poly Real Estate Group Co. surged to a three-week high and real-estate companies jumped after Shenyin & Wanguo Securities Co. said developers may rally 20 percent from current levels. Stocks tumbled yesterday after a private report showed manufacturing may contract for the first time in six months.

Indian stocks dropped for the first time this week as some investors bet the rally in the benchmark index to a record has outpaced the outlook for earnings growth. Ranbaxy Laboratories Ltd., the nation’s largest drugmaker, tumbled 19 percent after regulators banned it from producing or selling drug ingredients for the U.S. market from a fourth plant in India.

The premium investors demand to own emerging-market debt over U.S. Treasuries rose five basis points, or 0.05 percentage point, to 338 basis points, according to JPMorgan Chase & Co.

--Editors: Rita Nazareth, Daliah Merzaban