Rout in emerging markets spreads as stocks tumble around the world

Developing nations struggling to overcome huge price drops for commodity exports

A currency exchange booth in Istanbul, Turkey. Turkey is considered by many analysts to be a fragile emerging market, vulnerable to external shocks. Photograph: EPA

A currency exchange booth in Istanbul, Turkey. Turkey is considered by many analysts to be a fragile emerging market, vulnerable to external shocks. Photograph: EPA

 

The rout in emerging-nation assets has spread, as stocks tumbled around the world and demand for havens spiked on intensifying concern that global growth is slowing.

Kazakhstan became the latest country to stop defending its currency, as developing nations struggle to overcome plunging prices for commodity exports and China’s shock devaluation.

The selloff spread to US equities, wiping out 2015 gains in the Standard & Poor’s 500 Index as investors sought the safety of gold and Treasuries.

Investor anxiety over emerging markets is increasing as the Federal Reserve considers the timing of higher interest rates. Slower global economic growth may cause the central bank to delay a move, as minutes released on Wednesday showed officials are concerned about stubbornly low inflation caused in part by the commodities rout.

“There are so many more concerns than hopes,” said Larry Peruzzi, director of international trading at Cabrera Capital Markets in Boston.

“There are global growth concerns, Fed minutes created some uncertainty about rates, and also playing a part is oil poised to dip below $40. Add in light August volumes in the stock pot and you get a negative 1 per cent move.”

The MSCI All-Country World Index headed for the lowest close since January, falling 1 per cent at almost midday in New York. The S&P 500 Index dropped 1.2 per cent, leaving it in the red for 2015. The Kazakh tenge plummeted as much as 23 per cent while a gauge of developing-nation currencies slid to a record low. The yield on 10- year Treasuries fell four basis points to 2.09 per cent. Gold advanced to a one-month high.

Tight Range

Even as losses intensify, the S&P 500 remains stuck in the tightest trading range since 1927, down 3.5 per cent from a record reached in May. The benchmark has fallen through its average price for the past 200 days for the fourth time this month. Selling on Thursday was heaviest in some of the bull market’s biggest winners. Netflix lost 8.5 per cent, while media stocks were poised for a correction as Walt Disney tumbled 5 per cent amid an analyst downgrade.

Bank of America and Citigroup slumped more than 2.7 per cent to pace declines among the largest banks.

The Iseq fell by 2.2 per cent.

“We have been conditioned to buying on the dip,” said Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial.

“What’s happening is that investors want that dip deeper. It’s no longer a knee-jerk reaction to buy on the dip because the Fed will underpin the market. Investors are being much more cautious and not as sure that the Fed will be there.”

The MSCI Emerging Markets Index slid 1.3 percent, heading for the lowest close since 2009. Turkey’s lira briefly slid past 3 against the dollar for the first time ever and South Africa’s rand breached 13 per dollar, a level not seen since 2001. Russia’s ruble dropped to the weakest since February and Malaysia’s ringgit slid to a 17- year low.

Kazakhstan’s shift to a free-floating currency comes a day after letting the tenge slide 4.5 percent against the dollar, the most since a devaluation 18 months ago. Vietnam also devalued its currency on Wednesday.

Bloomberg