Emerging-market stocks dropped for a fourth day, dragging the benchmark index to its lowest level in two weeks as an increase in U.S. jobless claims and tensions on the Korean peninsula muted the global economic outlook.
The won sank to a six-month low as the risk of conflict with North Korea curbed demand for South Korean assets. Hyundai Motor Co. (005380) and Kia Motors Corp. (000270) tumbled after recalling vehicles for electronic defects. OTP Bank Nyrt., Hungary’s largest lender, drove gains on the BUX Index. Brazil’s Bovespa index fell to the lowest since July as oil producer OGX Petroleo & Gas Participacoes SA slumped after its credit rating was cut by Standard & Poor’s.
The MSCI Emerging Markets Index slipped 0.8 percent to 1,017.06 in New York, bringing its decline this week to 1.7 percent. North Korea stepped up threats against the U.S, authorizing its military to conduct a potential “smaller, lighter and diversified nuclear strike.” Claims for jobless benefits in the U.S. rose more than economists estimated last week, data released today showed.
“Concern over the unpredictability in Korea is part of the problem,” Christopher Orndorff, who helps oversee $450 billion as a senior portfolio manager at Western Asset Management Co. in Pasadena, California, said by phone. The jobless claims data “raises the stakes for the nonfarm payroll number tomorrow,” he said.
U.S. employers probably added a net 200,000 workers to their payrolls last month, after taking on 236,000 in February, according to the median of 58 economists surveyed before tomorrow’s data from the Labor Department.
The iShares MSCI Emerging Markets Index (MXEF) exchange-traded fund, the ETF tracking developing-nation shares, fell 0.3 percent to $41.71. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, jumped 4.6 percent to 19.20.
Nine of the 10 industry groups in the MSCI Emerging Markets Index dropped, led by a gauge of consumer discretionary companies. The broader index has lost 3.6 percent this year, compared with a 6.3 percent advance in the MSCI World Index (MXWO) of developed-country stocks. The emerging-markets measure trades at 10.6 times estimated earnings, compared with the MSCI World’s multiple of 13.7, data compiled by Bloomberg show.
South Korea’s Kospi Index (KOSPI) fell 1.2 percent, the most since Nov. 15. Trading volumes in the Kospi were 17 percent higher than the 30-day average, data compiled by Bloomberg show. Volumes for India’s S&P BSE Sensex were 33 percent lower.
Kim Jong Un’s regime, which hasn’t demonstrated it is capable of putting a nuclear device on a ballistic missile, didn’t specify what kind of weapon could be used in a potential strike, according to today’s statement carried by the official Korean Central News Agency.
“Tensions on the Korean peninsula act like negative catalysts to pull markets down,” Attila Vajda, an analyst at ACB Securities Co., said in Ho Chi Minh City. “Any event causing uncertainties leads to a correction.”
The won weakened 0.6 percent to the lowest level since Sept. 13.
Brazil’s Bovespa dropped 1.6 percent as Citigroup Inc. lowered its forecast for the benchmark equity gauge, citing “anemic” economic growth and quickening inflation. OGX slumped 11 percent, leading declines in the emerging markets gauge after S&P cut its rating and reduced the outlook to negative from stable.
Hungarian stocks rallied as central bank President Gyorgy Matolcsy said he will use foreign-currency reserves as part of a 500 billion-forint ($2.1 billion) program to boost lending and support the economy. OTP advanced 2.3 percent.
The central bank may cut its foreign-currency reserves by 3 billion euros, keeping the reduction within its risk threshold, Matolcsy told reporters in Budapest today. The forint reversed earlier losses, gaining 1 percent against the euro, the most since Jan. 17.
Russia’s Micex Index fell 0.1 percent. Surgutneftegas advanced as much as 4.2 percent as JPMorgan Chase & Co. raised it to overweight from neutral yesterday, citing expectations it will boost earnings visibility.
JPMorgan equity-derivatives strategist Bram Kaplan recommended buying the emerging market ETF (EEM:US) versus S&P 500 call switches to play a potential mean-reversion of the outperformance of the U.S. benchmark.
Vietnam’s VN Index (VNINDEX) dropped 1.7 percent, the steepest decline since March 4. The Sensex sank 1.6 percent. Markets in China, Hong Kong and Taiwan are closed for holidays.
Malaysia’s ringgit rose 0.1 percent to a two-month high on speculation fund inflows will quicken in the run-up to national elections. Prime Minister Najib Razak dissolved the legislature yesterday, paving the way for polls within 60 days.
Hyundai Motor, South Korea’s largest automaker, fell 5.1 percent, its biggest loss since Nov. 5. Kia Motors dropped 3.3 percent, the most since Jan. 25. The companies recalled more than 1.7 million vehicles from for electronic defects.
Thailand’s SET Index (SET) erased an earlier decline of as much as 2.6 percent after the nation’s anti-corruption agency dismissed a case against Prime Minister Yingluck Shinawatra and the central bank ruled out the possibility of property-price controls. The benchmark gauge added 0.5 percent.
Coal India Ltd. (COAL), the world’s biggest producer of the fuel, rose 3 percent in Mumbai, the most since April 19. India plans to raise 200 billion rupees ($3.7 billion) selling part of its stake in Coal India and narrow the widest budget deficit among major emerging economies.
The extra yield investors demand to own emerging-market debt over U.S. Treasuries dropped four basis points, or 0.04 percentage point, to 301 basis points, according to JPMorgan Chase & Co.’s EMBI Global Index.
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