Emerging-market currencies extend their gains

Emerging-market currencies extended their longest stretch of gains since April as doubts that the Federal Reserve will raise interest rates this week helped shore up demand for riskier assets.

Chinese equities dropped the most in three weeks on concern that government stimulus measures are failing.

Russia’s ruble rose 0.5 per cent versus the dollar, helped by the first Brent crude gains in three days. The South African rand added 0.5 per cent as the country reported its smallest current-account deficit in four years.

A gauge of 20 developing-nation currencies rose 0.1 per cent, heading for its sixth day of gains, while the MSCI Emerging Markets Index was little changed in early afternoon London.

The Shanghai Composite Index slumped 3.5 percent, the most since August 25th, after data on Monday showed mainland Chinese equity funds lost 44 per cent of their value in August.

Odds that the Fed will raise borrowing costs this month are at 30 per cent, compared with more than 50 per cent before China's yuan devaluation last month. "It looks like currencies are taking a breather ahead of the Fed meeting, as the market is not convinced that we will see a hike," said Simon Quijano-Evans, the chief emerging-market strategist at Commerzbank in London.

“Equities appear to be following Chinese equity developments more closely for the time being.”

The Shanghai Composite has dropped 6.1 per cent this week, its sharpest two-day decline since August 26th.

The Hang Seng China Enterprises Index of mainland shares listed in Hong Kong decreased 0.3 per cent. Data this month showed five interest-rate cuts since November and plans to boost state spending have yet to revive an economy weighed down by overcapacity and producer-price deflation.

“We have had a slew of data from China over recent days that continue to show a soft economy,” said Nathan Griffiths, a senior emerging-market equities manager who helps oversee about $1.2 billion at NN Investment Partners in The Hague.

“The most worrying aspect for the market is that we have had a lot of incremental monetary policy stimulus over the past twelve moths, but it has done little to drive faster growth.”

- Bloomberg