Emerging-Market ETF Climbs From Five-Month Low on U.S. Spending

Jan 30, 2014 4:53 pm ET

Jan. 30 (Bloomberg) -- The iShares MSCI Emerging Markets Index exchange-traded fund rebounded from a five-month low after a report showing an increase in American consumer spending outweighed concern the Chinese economy is slowing.

The ETF rose 0.9 percent to $38.13 at 4 p.m. in New York. The MSCI Emerging Markets Index fell less than 0.1 percent to 936.37, extending the worst start to a year since 2009. The Borsa Istanbul 100 Index climbed from the lowest level since July 2012. Brazil’s real led gains in currencies after the central bank said it will offer $2.3 billion of foreign-exchange credit lines to support the currency. The Shanghai Composite Index sank as data showed China’s manufacturing contracted.

The U.S. economy expanded at a 3.2 percent pace in the fourth quarter as Americans’ spending climbed the most in three years, laying the ground for further improvement in 2014. Diminishing fiscal challenges and progress in the labor market will probably sustain consumer and corporate demand in 2014, helping explain why the Federal Reserve decided yesterday to keep paring stimulus. The report helped ease concern that China, the world’s second-biggest economy, is cooling down.

“I’m still relatively optimistic on the market despite this rough start to the year,” John Carey, a fund manager at Boston-based Pioneer Investment Management Inc., said in a telephone interview. His firm manages about $220 billion. “I would continue to focus on the U.S., which is doing OK. Emerging markets will come along at some point.”

ETF Outflows

Investors are pulling money from exchange-traded funds that track emerging markets at the fastest rate on record. More than $7 billion flowed from ETFs investing in developing-nation assets in January, the most since the securities were created, data compiled by Bloomberg show.

Redemptions accelerated after data showed Chinese manufacturing contracted and Argentina’s unexpected devaluation of its peso dented confidence in Latin America. Surprise rate increases by central banks in Turkey and South Africa failed to boost their currencies, while the Fed opted to press on with reductions to its monetary stimulus.

“A lot of speculative money has been circulating in the emerging markets and the party seems to be over, at least for now,” said Howard Ward, the chief investment officer for growth equity at Rye, New York-based Gamco Investors Inc., which oversees about $40 billion. “There is a growing lack of confidence in the economic policies of many emerging markets at a time when growth is slowing and inflation is a real problem.”

Brazil, Turkey

Brazil’s Ibovespa fell to a six-month low as iron-ore producer Vale SA slid. Pulp producer Fibria Celulose SA slumped the most since September after fourth-quarter losses exceeded estimates. The real gained 1.2 percent.

Turkey’s stocks rallied as Finance Minister Mehmet Simsek ruled out restricting capital movements or ending the nation’s floating exchange rate, after the prime minister vowed “out-of- the-ordinary” measures to support the currency. Turkiye Garanti Bankasi drove gains in lenders.

Most Russian stocks declined as OAO Moscow Exchange slumped 3.5 percent. The ruble bounced back from a record low after the central bank affirmed unlimited market interventions to keep the Russian currency within its target corridor amid the selloff in emerging markets.

Ukrainian bonds slumped, pushing yields to a six-week high, as Russia threatened to delay an aid package and President Viktor Yanukovych refused to unconditionally pardon protesters. Russia, which lent Ukraine $3 billion last month to help it avoid a default, should withhold further aid until Premier Mykola Azarov’s government is replaced, President Vladimir Putin said yesterday.

China, India

China’s stocks fell, with the benchmark gauge capping its worst start to a year since 2010. Sinovel Wind Group Co., the country’s biggest maker of wind turbines, retreated to a record low after estimating a wider loss for 2013. Industrial & Commercial Bank of China Ltd., the nation’s biggest listed lender, fell 0.9 percent after agreeing to buy a controlling stake in a unit of Standard Bank Group Ltd.

The S&P BSE Sensex dropped to a two-month low as State Bank of India slumped. Hindalco Industries Ltd. slid for a second day, sending a gauge of metal makers to a 11-week low. Hero MotoCorp Ltd. had the biggest decline in four months before its earnings. India’s 10-year bonds fell, pushing the yield to its highest level in almost a month.

The premium investors demand to own emerging-market debt over U.S. Treasuries fell one basis point, or 0.01 percentage point, to 350 basis points, according to JPMorgan Chase & Co.

--With assistance from Ye Xie and Lu Wang in New York and Ian Sayson in Manila. Editors: Rita Nazareth, Matthew Brown