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London - Emerging-market stocks and currencies headed for the steepest four-day declines since January on growing concern the UK will leave the European Union. Investors turned the most bearish in two months on sovereign debt.
Equity gauges from Russia to South Africa and Turkey dropped at least 1% as investors sold riskier assets after polls favored Britain’s “Leave” campaign before the June 23 referendum. The ruble weakened for a third day and the rand led losses among peers.
Poland’s bond yields jumped to the highest level in almost 12 months. Chinese shares rebounded and Pakistan’s main gauge rose to a record on bets the nations’ shares will be added to the MSCI Emerging Markets Index.
Volatility expectations in developing-nation stocks have surged by 40% in the past three days, the most since August, as Brexit concerns compounded a risk-off sentiment spurred by a Fed meeting this week. While traders rule out an immediate hike in US interest rates, they remain on edge over the impact of policy tightening later this year and the market fallout of a Brexit vote.
“Uncertainty is the problem,” said Peter Dixon, global equities economist at Commerzbank in London. “Markets were priced for a ‘Remain’ vote and it now appears as though it’s not a clear-cut decision. As a consequence, they have to adjust now and the Fed concern has moved to the background temporarily.”
Stocks
The MSCI Emerging Markets Index fell 0.7% to 803.53 at 13:59, taking its four-day loss to 4.6%. The gauge trades at a valuation discount of 26% relative to developed markets, one percentage point wider than a week ago. Nine out of the 10 subgroups declined, with technology stocks the lone gainer.
“It’s a trifecta of uncertainty with Brexit, the FOMC meeting later this week, and the slump in liquidity typical from June to August, which would exaggerate market movements,” said Geoffrey Ng, who oversees about $238m as a director at Fortress Capital Asset Management in Kuala Lumpur. “With markets on a yo-yo, we are only taking trades that are within a range and are short term.”
The RTS Index of dollar-denominated Russian stocks slid 3.3%, the second-worst performance in the world after Danish stocks. The FTSE/JSE Africa All Share Index in Johannesburg retreated the most since May 3. The Borsa Istanbul 100 Index dropped for a fourth day.
The Karachi Stock Exchange KSE100 Index surged 1.5% to a record before MSCI’s announcement that could upgrade the nation to emerging-market status.
EFG Hermes said last month that an upgrade could bring around $475m of inflows in to Pakistani equities by mid-2017. The Shanghai Composite Index gained 0.3%, while the Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong pared earlier gains and dropped 0.4%.
Currencies
The MSCI Emerging Markets Currency Index fell 0.5% and has lost 1.5% in four days, its longest run of losses since May 9. Russia’s ruble weakened 1.3% as crude extended declines, and the rand declined 1.1%.
Bonds
The premium investors demand to own emerging-market debt rather than US Treasuries widened five basis points to 405, according to JPMorgan. Index. Polish government bonds retreated, sending 10-year yields nine basis points higher to 3.27%. The yields on similar-maturity Russian notes and South African securities jumped nine basis points.
