Energy producers drag emerging stocks to lowest in two weeks

KUALA LUMPUR, Feb 24 — Emerging-market stocks dropped for a second day, dragged lower by energy producers, and Russia’s rouble slid as oil extended losses and concern deepened over the outlook for global growth.

Shares in Hong Kong, Russia, South Africa and Dubai slumped more than 1 per cent, while the rouble tumbled the most in almost two weeks and Malaysia’s ringgit headed for a four-week low as oil in New York fell through US$31. China’s yuan fell for a fourth day as the central bank cut its daily fixing and a report suggested outflows persisted last month. Brazilian bonds fell with the real after Moody’s Investors Service downgraded the country’s debt to junk.

Oil’s retreat weighed on emerging markets along with concern that China’s policy makers are struggling to manage a deepening slowdown. Crude slid for a second day today after Iran’s oil minister dismissed a plan forged by Saudi Arabia and Russia to lock production at January levels and Iraq’s oil minister called for unity.

“The underlying market concerns are about global growth, whether out of China or the US,” said Simon Quijano-Evans, the chief emerging-markets strategist at Commerzbank AG in London. “Oil is a barometer for growth.”

Quijano-Evans said he favours local currency bonds in central and eastern Europe and notes from the Philippines and Thailand. BlackRock Inc and Franklin Templeton signalled it may be time to consider adding exposure.

Data due to be released today on US new home sales and services may provide new evidence about the strength of the world’s largest economy. Federal Reserve vice chairman Stanley Fischer said in a speech yesterday that he remained uncertain over whether this year’s financial market turmoil could affect growth and inflation in the US

Stocks

The MSCI Emerging Markets Index fell 1.2 per cent to 736.23 as of 12:36pm in London. The measure is headed for its biggest drop since February 11 and has retreated 7.3 per cent this year. That compares with a 8.1 per cent decline in the MSCI World Index of developed-country equities.

Sasol Ltd of South Africa and China’s CNOOC Ltd led declines in energy companies, sliding at least 3 per cent. Gazprom PJSC and Lukoil PJSC helped send Russia’s Micex Index down 1.6 per cent as trading resumed after a holiday. Dubai’s DFM General Index fell 1.7 per cent, the most since February 11.

India’s S&P BSE Sensex lost 1.4 per cent as investors awaited the government’s presentation of the railway budget tomorrow and national budget next week to gauge their direction of policies to support the economy.

Kepco Plant Service & Engineering Co slumped a record 21 per cent in Seoul after a 61 per cent drop in full-year earnings prompted rating downgrades by analysts.

The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong slid 1.3 per cent following yesterday’s 0.6 per cent drop. PetroChina Co fell 2.1 per cent, halting a two-day advance. The Shanghai Composite Index rose 0.9 per cent, rebounding in the last hour of trading.

Currencies

A gauge of 20 developing-nation currencies retreated for a second day. The rouble declined the most, falling 2.4 per cent, while the ringgit weakened 0.6 per cent. South Korea’s won fell 0.4 per cent as tensions with North Korea persisted.

The real slid 1.1 per cent. Moody’s cut the country’s rating to Ba2 from Baa3, with a negative outlook.

The yuan fell 0.1 per cent to 6.5328 a dollar, according to China Foreign Exchange Trade System prices. It dropped to 6.5332 earlier, the weakest level since February 15, and has lost 0.24 per cent in a four-day streak. The central bank cut the reference rate by 0.04 per cent to 6.5302 following a 0.17 per cent reduction yesterday.

Bonds

The yield on Brazil’s bonds due in 2027 rose 16 basis points to 16 per cent. The yield on 10-year Indonesian notes jumped 11 basis points to 8.29 per cent.

The extra yield investors demand to own emerging market debt over US Treasuries jumped five basis points to 472, according to JPMorgan Chase & Co indices.

Bond valuations already reflect low commodity prices, and the dovishness of major global central banks has made “riskier” assets more attractive, analysts at BlackRock Inc, the world’s largest money manager, wrote in a research note yesterday. Franklin Templeton Co’s Michael Hasenstab, who oversees US$125 billion (RM525 billion) in assets, said negative sentiment towards developing markets has reached extreme levels, favouring countries including Brazil, Mexico and South Korea.

China scrapped limits on the amount of funds that foreign institutional investors can put into its interbank bond market, the world’s third-largest, in a step to lure capital from abroad as outflows weigh on the yuan. The central bank said overseas commercial lenders, insurance companies, securities firms and asset managers will no longer need to apply for quotas to invest in the market, according to a statement published today on its website.

Poland’s 10-year debt rose for a third day, with the yield dropping four basis points to 2.85 per cent. South Korean and Indian bonds also advanced. — Bloomberg