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More pain for emerging stocks, currencies as China slows

Kuala Lumpur - Emerging-market currencies slumped this year by the most in almost two decades and analysts are forecasting further losses in 2016 due to China’s slowdown and US monetary tightening.

The deteriorating sentiment also hurt stocks and bonds, with an index of equities covering developing countries posting the biggest annual drop since 2011. The premium investors demand to hold emerging-market sovereign debt widened for an unprecedented third year after the Federal Reserve took the long-awaited move of raising interest rates and signalled more to come.

UBS AG and Citigroup strategists said this month that more pain is in store because developing markets haven’t fallen enough to reflect subdued global growth. A slump in commodities that pushed Brent crude to an 11-year low is also damping confidence as economists forecast China, the world’s second- biggest economy and a major buyer of raw materials, will slow further in 2016.

“Fundamentally, none of the emerging-market currencies are going to buck against the tide of a stronger dollar,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore “The focus for the Fed has shifted from lift-off to the next rate hike. We could be stuck in the low-for-longer scenario for commodity prices.”

A measure of 20 developing-nation exchange rates depreciated 15% in 2015, the steepest slide since 1997. All but six of the 24 emerging-market currencies tracked by Bloomberg are expected to weaken again in the next 12 months, with Argentina’s peso, the Brazilian real and the Indonesian rupiah seen falling the most.The aforementioned pair led losses this year, along with the South African rand and Colombian peso.

The Bloomberg Commodity Index tracking 22 raw materials sank 25% this year while Brent crude plunged 36% in its worst annual decline since 2008. China’s gross domestic product is forecast to increase 6.5% in 2016, slowing from an estimated 6.9% in 2015, according to a Bloomberg survey of economists.

Stocks

The MSCI Emerging-Markets Index rose for the first time in four days and was up 0.2% at 793.09 as of 2:16 p.m. in Singapore. The gauge retreated 17% in 2015. Chinese shares traded in Hong Kong and equities in Thailand, Indonesia and Taiwan were among the biggest decliners this year. The measure is valued at 11 times projected 12-month earnings. The MSCI World Index fell 1.9% this year and is valued at a multiple of 16.

Nine of the 10 industry gauges in the developing-nation index rose Thursday, led by material and utilities companies, while energy firms dropped. The Hang Seng China Enterprises Index gained 0.1% after falling 1.3% on Wednesday, paring this year’s decline to 19%. Markets in South Korea, Philippines, Indonesia and Thailand are closed for holidays.

“China’s slowdown, combined with the fear of Fed rate hikes as well as price weakness in commodities led to a quite bad year for emerging-market investors who didn’t look for a niche market,” Attila Vajda, managing director of Project Asia Research & Consulting Pte, a Singapore-based advisory firm, said from Ho Chi Minh City. “Investors should cherry pick and not treat all EM markets as being the same.”

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