Emerging-Market Stocks Fall on Concern Russia Deal Will Collapse

Apr 22, 2014 4:39 pm ET

April 22 (Bloomberg) -- Emerging-market stocks fell for a second day on concern Russia will face tougher sanctions as a deal to ease tension in Ukraine showed signs of collapse.

The MSCI Emerging Markets Index dropped 0.2 percent to 1,008.72. The Micex Index extended a two-day slide to 1.5 percent in Moscow while Ukraine’s hryvnia sank after posting the biggest rally on record last week. The yuan touched a 14-month low as the People’s Bank of China weakened the currency’s reference rate. Brazil’s swap rates climbed from a one-week low as economists surveyed by the central bank forecast inflation will exceed the upper limit of the official target this year.

Pro-Russian forces, who seized buildings in eastern Ukrainian cities, have said they’re not bound by the deal reached last week by Ukraine, the European Union, the U.S. and Russia. The Obama administration has threatened further penalties, including measures targeting the Russian banking and energy industries, unless progress is made in easing the crisis.

“They can talk what they want, but are these separatist parties going to actually agree to any of these arrangements?” Brian Jacobsen, who helps oversee $241 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said by phone. “Unless we can confirm commitment to help quiet the violence, we’re going to continue to see very little good news coming out of Ukraine.”

The iShares MSCI Emerging Markets Index ETF fell 0.3 percent to $41.64. The premium investors demand to own emerging- market debt over U.S. Treasuries rose 0.01 percentage point to 289 basis points, according to JPMorgan Chase & Co.

Russia, Turkey

Declines in the Micex were led by OAO Sberbank while the hryvnia, the world’s worst performer this year, depreciated 4 percent.

The lira fell for a third day against the dollar after Economy Minister Nihat Zeybekci said inflation will fall to around 6 percent by the end of the year, spurring speculation the government will push for lower rates.

The yuan slid 0.16 percent to close at 6.2375 per dollar in Shanghai, China Foreign Exchange Trading System prices show. The currency touched 6.2390 earlier, the weakest level since February 2013.

A preliminary reading for China’s Purchasing Managers’ Index for manufacturing was 48.3 for April, compared with a final figure of 48 in March, according to the median estimate in a Bloomberg News survey before HSBC Holdings Plc and Markit Economics release the data tomorrow. Fifty is the dividing line between contraction and expansion.

Brazilian swap rates on contracts maturing in January 2016 increased two basis points, or 0.02 percentage point, to 11.96 percent at 4:34 p.m. in Sao Paulo on speculation policy makers will keep raising borrowing costs. The Ibovespa fell for the first time in three sessions.