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Kuala Lumpur - Emerging-market stocks fell toward the lowest level in more than three weeks as demand for higher-yielding assets cooled ahead of a US payrolls report on Friday that may be key for determining whether interest rates will rise this year in the world’s largest economy.
The MSCI Emerging Markets Index dropped for a second day, paring this quarter’s gains to 6.9%, after Brent crude extended a 2.8% decline on Wednesday to trade under $47 per barrel, pushing down Malaysia’s ringgit to its weakest in more than two months.
The rand halted a nine-day rout as a technical indicator signaled the currency’s losses may have been too rapid. Shares in Qatar fell for a second day.
While US-listed emerging market exchange-traded funds have added $19bn over the last 13 weeks, inflows have slowed in the last 14 days as odds for a rate hike in the US this year reached 60%.
While developing-market assets have been buoyed this quarter by a prevalence of negative interest rates in richer economies, momentum slowed after Fed chair Janet Yellen said the case for tightening had strengthened and hiring in the continued to exceed forecasts.
“Following the great summer run, emerging-market investors are bound to move into caution mode ahead of each important release, culminating in the September 21 Fed meeting,” Simon Quijano-Evans, an emerging-markets strategist at Legal & General in London. “Tomorrow’s non-farm payrolls data is a major input factor and thus explains likely market caution ahead of the release.”
Stocks
The MSCI Emerging Markets Index dropped 0.3% technology companies. China Gas fell 9.9%, the most in four months in Hong Kong, leading a drop in gas distributors on concern natural gas selling prices and margins may be curbed by the government.
Battery maker Samsung SDI fell 6.1%, the most in more than two months, after Chosun Ilbo reported that parent Samsung Electronics will recall its new phone model over faulty batteries. South Korea’s Kospi index dropped 0.1%.
Qatar’s QE Index fell to the lowest level since August 7 as investors cash in gains ahead of inclusion to FTSE Russell EM index and data showed tightening bank liquidity. Saudi Arabia’s Tadawul All Share Index slid 1%.
Warsaw’s WIG20 index fell the most among markets in central and eastern Europe, with the country’s biggest lender PKO Bank Polski SA falling the most since the end of July after the company’s chief executive was quoted as saying the bank prefers to grant loans to clients rather than paying out a dividend.
Hungary’s Budapest Stock Exchange Index climbed to a eight-year high and Czech shares advanced.
The Philippine Composite Index fell to a two-month low as foreign fund managers pulled money out of the nation last week at the fastest pace since last September. SM Prime Holdings dropped the most in more two months in Manila. Taiwan’s Taiex Index slid 0.8%.
China’s Shanghai Composite Index slumped 0.7%, while the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong gained 0.8%. China’s factory gauge unexpectedly rises to highest level since 2014, suggesting the economy’s stabilization remains intact.
Equity gauges in Indonesia, Malaysia and Vietnam dropped at least 0.5%.
Currencies
The MSCI Emerging Markets Currency Index fell 0.1%. The ringgit slid 0.7%, after touching the lowest level since June. Malaysia is Asia’s only major net oil-exporting nation.
The won weakened 0.6% after a report showed South Korea’s current-account surplus narrowed in July. Separate data showed consumer prices increased 0.4% in August from a year earlier, the slowest pace since April 2015. The reading was below the 0.7% gain forecast by economists in a Bloomberg poll.
The rand rose 0.5%, on track to halt nine days of losses, as its 14-day relative-strength index was near 30 on Wednesday, a level that suggests to some traders an asset is poised to rebound. Heightened domestic political risks led Africa’s biggest private fixed-income money manager Futuregrowth Asset Management to stop lending money to six of the country’s largest state companies.
Hungary’s forint weakened 0.2% against the euro, dropping for a third day.
Bonds
Ten-year South Korean government bonds fell, with the yield gaining five basis points to 1.53% according to prices from local banks compiled by Bloomberg. The three-year yield rose three basis points to 1.34%.
South African debt gained, with yields on benchmark government bonds due December 2026 dropping 10 basis points to 8.98% after rising 42 basis points in August. Yields on bonds of similar maturity in Turkey declined two basis points.
The premium investors demand to own emerging-market bonds rather than US Treasuries fell three basis points to 335 basis points, according to JPMorgan indices.
US jobs
US employers probably added 180 000 jobs in August, after a 255 000 increase the previous month, a Bloomberg survey of economists showed.
Angus Nicholson, a market analyst in Melbourne at IG, said the US report could widen the market’s fluctuations. The JP Morgan Emerging Market Volatility Index has climbed to 10.2 since reaching 9.43 in July, its lowest level in almost a year.
“It has been a very quiet August and markets seems to be livening up a bit as people come back from the holidays and there’s a whole lot of new data that needs to be priced in,” Nicholson said.
