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Seoul - Emerging-market currencies and stocks fell after comments from a Federal Reserve official strengthened speculation there will be a US interest-rate increase this year.
South Africa’s rand led currencies lower following remarks Sunday from Fed Vice Chairman Stanley Fischer that the US economy is already close to meeting the central bank targets and a 2016 rate hike is still under consideration.
Shares in Shanghai retreated the most in three weeks and Saudi Arabia led declines in Gulf stocks as oil slid below $48 a barrel. Turkish assets fell, with the yield on 10-year bonds climbing to a two-week high, after Fitch Ratings cut the outlook on the country’s credit.
Emerging markets extended declines from one-year highs reached last week as commodities dropped and traders boosted bets for rate increases on the back of hawkish Fed comments.
Fischer’s comments followed San Francisco Fed President John Williams saying last week that the September meeting is “in play” for a rate move. The market’s focus will now be on Janet Yellen’s comments on Friday in Jackson Hole, Wyoming.
“High-yielding currencies like the rand and the lira are under pressure,” said Guillaume Tresca, a senior strategist at Credit Agricole CIB in Paris, who recommends selling those two currencies. “Markets are getting a good reminder that the Fed is still on course to do something. Emerging markets will remain on a back foot until Yellen’s speech.”
Currencies
The MSCI Emerging Markets Currency Index dropped 0.3% as of 13:44, leaving this year’s advance at 6%. The rand dropped 0.9%, while South Korea’s won retreated 0.8% and Taiwan’s dollar lost 0.6%. Russia’s ruble lost 0.8% as oil extended losses.
The probability of a rate increase by the end of the year rose to 51% on August 19 from 42% a week earlier, according to fed fund futures.
“Comments over the weekend from FOMC’s Stanley Fischer have cemented more firmly in the markets minds that hikes will happen this year as a result of views around his position on the FOMC and being close to Yellen,” said Peter Attard Montalto, senior emerging-markets strategist at Nomura International Plc in London.
Turkey’s lira weakened 0.6%. Fitch cut the outlook on the country’s investment grade credit to negative from stable on Friday after a failed coup attempt in July increased political risks. The rupee slipped 0.2% after India named Urjit Patel to take over from Raghuram Rajan as central bank governor from September 4.
Stocks
The MSCI Emerging Markets Index slid 0.5%. The measure closed Thursday at the highest level since July 2015. The developing-nation gauge has advanced 14% this year and is valued at 12.5 times 12-month estimated earnings. That compares with 4.2% gain in the MSCI World Index which trades at multiple of 16.3.
All 10 industry groups in the emerging-market index fell. Zhuzhou CRRC Times Electric tumbled 7.6%, the biggest decline since January, after ratings were cut by Credit Suisse and UOB-Kay Hian.
The Shanghai Composite Index slipped 0.8%, and Turkey’s Borsa Istanbul 100 Index fell 0.6%. Saudi Arabia’s Tadawul All Share Index led declines in Gulf stocks, dropping 1.2%. Oil slid 2.1% to $47.52 a barrel in New York.
Mega Financial Holding tumbled 6.3% in Taipei after Taiwan’s government said it will probe the company’s unit that was fined $180m for violating anti-money laundering laws by a US regulator. The Taiex Index closed at the lowest level in five weeks.
Bonds
The yield on Turkey’s 10-year bond rose five basis points to 9.9%, the highest since August 5. Fitch cut the outlook on Turkey’s investment-grade credit to negative from stable, as a failed coup attempt last month increased the political risks in the country.
The rate on similar-maturity South African bonds rose three basis points to 8.51%, and Russia’s yield increased two basis points to 8.35%.
The extra yield investors demand to own emerging-market debt over Treasuries was little changed at 331, near the lowest close in more than a year reached on Friday, according to JPMorgan indices.
