New York – Emerging market stocks slumped to the lowest in more than six years and currencies dropped as concern that China’s growth outlook is worsening prompted investors to shun riskier assets.
All 10 industry groups in the MSCI Emerging Markets Index fell at least 1.1%. Philippine shares entered a bear market as Chinese stocks on the mainland and in Hong Kong led a rout in Asia. Equity gauges in Egypt, Russia and Abu Dhabi lost at least 1.4%. The rouble weakened as trading resumed following a two-day holiday as oil slumped below $33 a barrel in London. A gauge of developing nation exchange rates declined to an all-time low.
Volatility in Chinese markets has sapped risk appetite globally as extreme swings in local assets revive concern about the government’s ability to manage an economy set to grow at the weakest pace since 1990. Data over the weekend showed consumer inflation remained at about half the official target while producer prices fell for a 46th month, fuelling speculation that the slowdown is deepening.
“The weakness in both the A-share market and the oil price would be the two lead indicators today,” said Tony Hann, the head of emerging equities at Blackfriars Asset Management in London, referring to stocks traded on bourses in mainland China.
“Both are perceived as symptoms of weak growth,” said Hann, who is avoiding energy stocks in favour of consumer- oriented assets.
As stocks extended this year’s slide to 8.6%, the worst start to the year since 1998, a measure tracking 20 developing country currencies fell for a seventh day. Bonds in emerging Europe retreated on Monday, with yields on five-year Russian debt climbing the most since August.
The MSCI Emerging Markets Index decreased 2% to 725.50 by 11:18 in London, dragging the average valuation of its companies to 10.4 times projected 12-month earnings, the lowest in more than four months. That represents a 30% discount to the MSCI World Index of advanced nation shares, which has fallen 6.2% in 2016.
A gauge of financial companies slid 2.5% while one tracking energy stocks retreated to the lowest level since September 2004. Crude extended its slide, confirming the view of hedge funds that cut bullish price bets to the lowest since 2010.
China Life Insurance Co fell 5.1% and Industrial & Commercial Bank of China lost 3% in Hong Kong, while Cnooc slid 4.2%. Hon Hai Precision dropped 3.3% in Taipei. Gazprom PAO and Lukoil PJSC fell at least 3% in Moscow.
The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong sank 3.9% to close at the lowest level since October 2011. The Shanghai Composite Index fell 5.3%, extending last week’s 10% loss. China’s producer price index slumped 5.9% in December from a year earlier.
“Weak Chinese data are creating more uncertainty and increasing risk aversion towards emerging-market stocks and currencies,” said Jonathan Ravelas, the chief marketing strategist at BDO Unibank in Manila. “Most investors also doubt China’s financial markets will stabilise anytime soon. Given the volatility, it’s best to stay on the sidelines and remain liquid.”
The bearish sentiment spread across the developing world, with the Philippine Stock Exchange Index declining 4.4%, bringing its retreat from the April 10 peak to more than 20%, a move that signals a bear market. Measures in Taiwan, Indonesia, Malaysia and South Korea dropped at least 1%.
A gauge tracking 20 developing nation exchange rates fell 0.2% to an all-time low. Its losing streak is the longest since a 10-day loss that ended August 24.
The rand plunged as much as 9% as poor liquidity exacerbated a drop spurred by risk aversion. Russia’s rouble weakened 1.1% versus the dollar. The South Korean won fell 1% as global funds pulled out of local stocks amid signs of faltering growth in China, the nation’s biggest export market.
China’s yuan snapped a three-day loss after the central bank kept its reference rate little changed for a second day, fuelling speculation that last week’s bout of weaker fixings has halted for now.
Russian five-year bond yields surged 26 basis points to 10.19%, while the rate on two-year Turkish notes increased two basis points to 11.20%.
The yuan’s interbank rates climbed in Hong Kong as suspected central bank intervention to prop up the offshore exchange rate last week tightened supply of the Chinese currency. The overnight Hong Kong Interbank Offered Rate jumped 939 basis points to 13.4%, the highest since the fixings began in June 2013.
South Korea’s bonds gained, driving 10-year yield down three basis points to 2.04%.