Emerging-market stocks fell for the first time in three days as a global rout in bonds reduced the appeal of equities relative to debt yields.
Bonds from South Africa to Poland declined, tracking losses in Europe and Japan. Bank of China Ltd. led the Hang Seng China Enterprises Index down 1.5 percent. Indian shares retreated after posting their biggest two-day gain in a year.
Iron-ore producer Vale SA led Brazilian stocks lower, pushing the Ibovespa to the lowest level this month. The ruble rallied as oil, Russia’s biggest export, ended a three-day losing streak.
“Equities are under pressure today with yields higher,” Martial Godet, the head of emerging-market equities and derivatives strategy at BNP Paribas SA in Paris, said by e-mail.
“The bond bubble is bursting in Europe, with rates rising almost twice as fast as in the U.S.” Ten-year U.S. Treasury bonds rose Tuesday after yields touched the highest level since November. Japanese and German bonds continued to fall.
The bearishness is echoing in emerging-market securities amid concern that an interest-rate increase by the Federal Reserve this year will end the regime of low yields. The MSCI Emerging Markets Index fell 0.7 percent to 1,029.03, reducing this year’s gain to 7.6 percent.
The gauge has retreated 3.6 percent from a seven-month high on April 28 as investors bet equities had risen too fast and a surge in initial public offerings from China will divert funds from existing shares.
Yield Spread
Federal Reserve Bank of New York President William C. Dudley said several important emerging-market economies are vulnerable to higher U.S. interest rates.
In remarks prepared for a panel discussion in Zurich, the only Fed president with a permanent vote on U.S. monetary policy said developing nations are, however, better equipped now to handle an end to stimulus than in past tightening cycles.
The premium investors demand to own emerging-market debt over U.S. Treasuries widened six basis points to 329 basis points, according to JPMorgan Chase & Co. indexes.
The yield on South Africa’s bonds maturing in December 2026 increased seven basis points to 8.16 percent, the highest since October.
The rate on Polish zloty bonds due July 2025 rose nine basis points to 2.88 percent. Russian 10-year bonds erased gains, pushing up the yield seven basis points to 10.51 percent. Vale declined 4.1 percent in Sao Paulo. The Ibovespa retreated 0.7 percent.
China Weakness
A gauge of Chinese stocks listed in Hong Kong halted a two-day advance as investors weighed the impact of more monetary easing against a weakening economy. China will release reports on industrial output and retail sales on Wednesday.
Bank of China slid from a one-week high. The Shanghai Composite climbed 1.6 percent, extending Monday’s 3 percent rally. The S&P BSE Sensex lost 2.3 percent in Mumbai. Stocks followed the rupee lower after global funds sold local assets amid concern over weakness in corporate earnings.
Delays in the passage of key economic bills in the upper house of parliament, where Prime Minister Narendra Modi’s Bharatiya Janata Party doesn’t have a majority, weighed on investor sentiment.
The ruble advanced 2.1 percent to 49.97 per dollar, climbing with the price of crude. A gauge of emerging-market currencies increased 0.4 percent.
bloomberg.com
Bonds from South Africa to Poland declined, tracking losses in Europe and Japan. Bank of China Ltd. led the Hang Seng China Enterprises Index down 1.5 percent. Indian shares retreated after posting their biggest two-day gain in a year.
Iron-ore producer Vale SA led Brazilian stocks lower, pushing the Ibovespa to the lowest level this month. The ruble rallied as oil, Russia’s biggest export, ended a three-day losing streak.
“Equities are under pressure today with yields higher,” Martial Godet, the head of emerging-market equities and derivatives strategy at BNP Paribas SA in Paris, said by e-mail.
“The bond bubble is bursting in Europe, with rates rising almost twice as fast as in the U.S.” Ten-year U.S. Treasury bonds rose Tuesday after yields touched the highest level since November. Japanese and German bonds continued to fall.
The bearishness is echoing in emerging-market securities amid concern that an interest-rate increase by the Federal Reserve this year will end the regime of low yields. The MSCI Emerging Markets Index fell 0.7 percent to 1,029.03, reducing this year’s gain to 7.6 percent.
The gauge has retreated 3.6 percent from a seven-month high on April 28 as investors bet equities had risen too fast and a surge in initial public offerings from China will divert funds from existing shares.
Yield Spread
Federal Reserve Bank of New York President William C. Dudley said several important emerging-market economies are vulnerable to higher U.S. interest rates.
In remarks prepared for a panel discussion in Zurich, the only Fed president with a permanent vote on U.S. monetary policy said developing nations are, however, better equipped now to handle an end to stimulus than in past tightening cycles.
The premium investors demand to own emerging-market debt over U.S. Treasuries widened six basis points to 329 basis points, according to JPMorgan Chase & Co. indexes.
The yield on South Africa’s bonds maturing in December 2026 increased seven basis points to 8.16 percent, the highest since October.
The rate on Polish zloty bonds due July 2025 rose nine basis points to 2.88 percent. Russian 10-year bonds erased gains, pushing up the yield seven basis points to 10.51 percent. Vale declined 4.1 percent in Sao Paulo. The Ibovespa retreated 0.7 percent.
China Weakness
A gauge of Chinese stocks listed in Hong Kong halted a two-day advance as investors weighed the impact of more monetary easing against a weakening economy. China will release reports on industrial output and retail sales on Wednesday.
Bank of China slid from a one-week high. The Shanghai Composite climbed 1.6 percent, extending Monday’s 3 percent rally. The S&P BSE Sensex lost 2.3 percent in Mumbai. Stocks followed the rupee lower after global funds sold local assets amid concern over weakness in corporate earnings.
Delays in the passage of key economic bills in the upper house of parliament, where Prime Minister Narendra Modi’s Bharatiya Janata Party doesn’t have a majority, weighed on investor sentiment.
The ruble advanced 2.1 percent to 49.97 per dollar, climbing with the price of crude. A gauge of emerging-market currencies increased 0.4 percent.
bloomberg.com
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