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Emerging stocks extend drop as China slumps on growth fears

Bangkok - Most emerging-market stocks and currencies fell for a third day as Chinese equities slumped the most in a month after money-market rates jumped and on concern recent gains were overdone relative to the outlook for the economy.

Seven of 10 industry groups in an MSCI gauge retreated, with industrial and financial shares dropping the most.

Tencent Holdings, Industrial & Commercial Bank of China and China Construction Bank contributed the most to the decline. The Taiex Index climbed to the highest in more than two months as Taiwan Semiconductor Manufacturing and Hon Hai Precision Industry led technology shares higher.

Russian equities fell for a second day and the rouble led declines in developing-nation currencies as crude oil in New York erased Wednesday’s gains.

China’s overnight money rate climbed by the most since the Lunar New Year holidays earlier this month and the Shanghai Composite Index dropped on speculation the gauge’s 10% gain through on Wednesday from the January’s low was excessive.

Concern that Chinese policy makers won’t be able to stem the slowdown in an economy growing at the weakest pace in 25 years and swings in oil prices have pushed the MSCI Emerging Markets Index to a 7.6% decline in 2016.

“Oil prices will stay at low levels for some time and China’s economic recovery will be slow, and these factors will limit growth in developing economies,” said Komsorn Prakobphol, a Bangkok-based senior investment strategist at Tisco Financial Group, whose mutual fund unit manages about $5bn.

“We still advise investors to increase investment in emerging-market equities because of attractive valuations, but to proceed with caution because of the global economic slowdown and volatility in oil prices.”

Emerging-market assets are so cheap that they may be “the trade of a decade,” according to Research Affiliates, a sub- adviser to Pacific Investment Management, one of the world’s biggest money managers.

They’re joining a growing number of investors, including BlackRock, Franklin Templeton and Goldman Sachs Asset Management, who are turning bullish on emerging markets after three years of under performance.

Stocks

The MSCI Emerging Markets Index fell 0.3% to 734.23 as of 8:56 a.m. in London, taking its three-day drop to 2%. The measure is valued at 10.8 times projected 12-month earnings of its members, compared with MSCI World Index’s multiple of 14.8.

The Shanghai Composite tumbled 6.4%, the biggest drop since January 26, while the Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong completed a third day of declines with a 2.4% slide. China’s overnight repurchase rate, a benchmark of interbank funding availability, jumped the most since February 6.

The Taiex rose 1% to its highest close since December 7. Hon Hai Precision jumped as much as 4.6%, the most since August, on the news that its parent, Foxconn Technology Group, will acquire Japan’s Sharp. Benchmark equity gauges in Thailand and South Korea rose at least 0.2%, while those in Vietnam, India and Malaysia retreated. Russia’s Micex index fell 0.4%.

Currencies, bonds

A Bloomberg index of 20 developing-nation currencies declined 0.1% and has dropped 0.7% in three days. The ruble slipped 1%, the most in a week, South Africa’s rand fell 0.6% and South Korea’s won dropped 0.4%. China’s yuan was little changed in Shanghai even as the central bank weakened the currency’s daily fixing. The offshore yuan fell 0.07 in Hong Kong.

South Korea’s sovereign bonds rose for a second day, with the 10-year yield dropping one basis point to 1.81%. The comparable yield in Indonesia fell one basis point to 8.28% and rose three basis points in India to 7.86%.

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