Emerging market stocks and currencies fell as a retreat in oil and speculation the Federal Reserve will signal it still intends to raise interest rates this year damped demand for higher-yielding assets.
Chinese stocks extended last week’s decline after commodity exchanges in the nation moved to cool trading in raw materials. The yuan weakened for a fourth day in Shanghai, while South Korea’s won had its biggest two-day drop since February. Share gauges in Russia, Hungary and Poland all fell. The Federal Open Market Committee announces its next rate decision Wednesday.
“Markets seem to be positioning a bit cautiously ahead of the FOMC meeting this week, just in case there is a hawkish surprise,” said Divya Devesh, a foreign-exchange strategist for Asia at Standard Chartered Plc in Singapore. “There is a high correlation between oil prices and risk assets and lower oil is weighing on the EM assets.”
The rally in emerging-market assets since the middle of February is petering out amid renewed concern China’s economic growth is slowing, while U.S. policy makers have indicated they will still raise rates twice this year. While the Fed is forecast to stay on hold this week, its statement may provide guidance on when it plans to add to its December rate increase.
The Shanghai Composite Index dropped 0.4 percent as of 8:48 a.m. in London, after sliding 3.9 percent last week. The Hang Seng China Enterprises Index, which tracks Chinese shares traded in Hong Kong, slumped 1.5 percent. Benchmark equity indexes fell 0.8 percent in South Africa, 0.7 percent in Hungary and 0.6 percent in Russia. All 10 industry groups in the MSCI Emerging Markets Index of shares fell.
The yuan weakened 0.02 percent to 6.5028 per dollar, the ringgit depreciated 0.3 percent to 3.9105 and the Thai baht slipped 0.1 percent to 35.13. The won slid 0.4 percent to 1,148.18, taking its two-day loss to 1.3 percent, the most since Feb. 17.
Crude oil retreated amid signs a global glut will be exacerbated as Middle East producers boost supplies. Brent crude for June settlement slid as much as 1.6 percent, to $44.41 a barrel on the London-based ICE Futures Europe exchange.
Commodity exchanges in the Chinese cities of Zhengzhou and Dalian announced late Friday that they would raise margin requirements on futures contracts of cotton and thermal coal, following similar moves on steel reinforcement-bar and iron ore contracts earlier in the week.
Korean Industries
Samsung Heavy Industries Co. slid 7 percent in Seoul and Hyundai Heavy Industries Co. sank 6 percent, following a report by Korea Economic Daily that the government is considering merging the defense businesses of Hyundai Heavy, Daewoo Shipbuilding & Marine Engineering Co., Hanjin Heavy Industries & Construction Co. and STX Offshore & Shipbuilding Co.
There’s a 63 percent chance the Fed will boost its benchmark rate this year, up from 50 percent odds as of April 15, according to data compiled by Bloomberg based on federal fund futures. Officials held off from raising borrowing costs at their March meeting and scaled back forecasts for how high rates will rise this year.
“Given the data that came out since the last Fed meeting, markets are now waiting for fresh leads and what the Fed would say,” Jonathan Ravelas, chief market strategist at Manila-based BDO Unibank Inc. “Considering you had a sharp rally already, it is good to wait confirmation and hear what is the Fed’s new economic assessment before chasing share prices again. The weakness in China and commodities is also a concern for some.”
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Bloomberg
