Azernews.Az

By Bloomberg

Emerging-market stocks sank to the lowest level since 2011, extending declines in a bear market, and currencies slid as China’s falling yuan spurred bets developing nations will weaken their currencies to stay competitive.

Investors exiting riskier assets drove stocks from Indonesia to South Africa and Turkey down at least 1.4 percent. Malaysia’s ringgit sank beyond 4 to the dollar for the first time since 1998 as currencies in South Korea and Indonesia lost at least 1 percent. Eastern European currencies, regarded as haven investments amid central bank stimulus in the euro area, outperformed peers.

In addition to diminishing the competitiveness of imports to China from countries including Russia, Brazil and South Africa, the yuan’s second day of weakening has raised the risk that Asian countries will take steps to boost faltering exports. Vietnam widened the dong’s trading band on Wednesday after China lowered the yuan’s daily fixing by 1.6 percent following a 1.9 percent cut on Tuesday.

“China is the most important country globally for trade, as both a manufacturer and a consumer,” Nathan Griffiths, a senior emerging-market equities manager who helps oversee $1.2 billion at NN Investment Partners in The Hague, said by phone. “The anticipation is that 3.5 percent is not necessarily the end of depreciation.”

The MSCI Emerging Markets Index decreased 1.3 percent to 866.90 by 1:55 p.m. in London, taking the rout from a peak last September to 21 percent. A gauge of 20 of the most-traded developing-nation currencies rose 0.1 percent after sliding 0.7 percent yesterday. Brazil’s real gained 0.1 percent following a 1.1 percent drop on Tuesday.

‘Fragile Sentiments’

In the flight to haven assets, the premium investors require to hold emerging-market debt over U.S. Treasuries widened five basis points to 387, the most since March, according to JPMorgan Chase & Co. indexes.

The Jakarta Composite Index tumbled 3.1 percent to an 18- month low. The rupiah weakened 1.4 percent. Indonesian President Joko Widodo picked former central bank Governor Darmin Nasution as the new economy minister in a cabinet shakeup aimed at rejuvenating economic growth.

The FTSE Bursa Malaysia KLCI Index dropped to the lowest level since December 2012 and the ringgit sank 1.4 percent. The weaker yuan lumped more pressure on the ringgit already hurt by a slowing economy and controversy over finances linked to Prime Minister Najib Razak.

“The re-enactment of a currency-war scenario has spooked already fragile sentiments,” said Christopher Wong, a Singapore-based senior investment manager at Aberdeen Asset Management Plc, who would look to buy selectively in “solid companies.”

Eastern Europe

Currencies in Poland, Hungary, the Czech Republic, Bulgaria and Romania strengthened against the dollar and were little changed versus the euro. Hungarian bonds outperformed peers, with the yield on five-year notes falling 10 basis points to 2.68 percent. Rates on similar-maturity debt in Romania fell six basis points to 2.85 percent.

PineBridge, with $10.6 billion in developing-nation fixed- income investments, last week increased its holding of Romania government dollar bonds to overweight, Anders Faergemann, senior sovereign money manager in London, said by e-mail Tuesday.

In Russia, which counts China as its second-biggest export market after Germany, the ruble weakened 0.5 percent to 64.569 per dollar. Bonds fell, pushing yields on five-year securities up two basis points to 11.10 percent.

Only the ruble weakened more than the yuan on Tuesday as the Chinese devaluation sent the price of oil, Russia’s main export earner, dropping 2.4 percent. Brent crude rose 1 percent to $49.66 a barrel on Wednesday.