London - Developing nation stocks resumed losses as focus returned to the prospect of Britain leaving the European Union after the Federal Reserve signalled a slower pace of interest rate increases and oil slumped.
The MSCI Emerging Markets Index erased Wednesday’s gain, with energy companies leading declines in all 10 industry groups. Equity benchmarks retreated across most of Asia and investors sought safety in government debt. A gauge of currencies was steady, with most Asian currencies advancing and the rand leading declines, after the Fed held rates. Chair Janet Yellen said the UK’s June 23 referendum was a factor in the decision and could have consequences for the global economy and markets.
“The concern is mainly over Brexit right now,” said Ang Kok Heng, Kuala Lumpur-based chief investment officer at Phillip Capital Management, which oversees $630m. “Risk-averse traders and hedge funds are already taking action to pull back on stocks. Investors have priced in the Fed decision much earlier to keep borrowing costs low for longer.”
Uncertain outlook
The uncertain outlook for global markets is giving investors reason for pause after Fed officials suggested the pace of further tightening will be slower than previously predicted. The Bank of Japan refrained from expanding its record monetary stimulus before policy reviews in Indonesia and the UK on Thursday. Yellen on Wednesday pointed to more permanent forces, such as low productivity growth and ageing societies, that could depress rates for longer in the US and much of the world.
The MSCI Emerging Markets Index slid 1% as of 09:20 in London, set for its fifth day of decline in six. The gauge has advanced 0.8% this year and is valued at 11.6 times the 12-month estimated earnings of its constituents, a 25% discount to the MSCI World Index that’s retreated 2%.
The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong slumped 2.3% to close at its lowest level in three weeks, as investors fled riskier assets amid growing concern over the outlook for global growth and the possible impact of a so-called Brexit. The Shanghai Composite Index fell 0.5% and Taiwan’s Taiex Index sank 1.3% to its lowest close since May 27.
South Korea’s Kospi Index fell 0.9% to a three-week low as foreign funds pulled money from the nation’s shares for the fifth consecutive day. Thailand and India’s benchmarks dropped at least 1% each, while Russia’s Micex fell 1.4% and the Dubai Financial Market General Index declined 0.7% each.
Pakistan surge
Pakistan’s Karachi Stock Exchange KSE100 Index jumped as much as 1.2% to a fresh record following Wednesday’s upgrade of the nation’s equities by MSCI to emerging market status. The Philippine Composite Index rose 0.8%, the most in more than a week. The Fed decision assured investors cash will remain ample in local markets, according to Jomar Lacson, deputy head of research at BPI Securities in Manila.
Sovereign bonds rose in South Korea, Malaysia, Indonesia, India and Thailand. The yield on South Korea’s 10-year notes fell four basis points to a record 1.58%.
The MSCI Emerging Markets Currency Index was little changed following Wednesday’s 0.2% advance. Indonesia’s rupiah and South Korea’s won rose 0.2% each, while the rand and Russia’s rouble both weakened 0.4%.