Market Watch | Emerging Assets Decline as Fed Move in June Seen as Possibility

LAGOS, Nigeria, Capital Markets in Africa: Emerging-market stocks and currencies fell to two-month lows as Federal Reserve minutes revived the possibility of an interest-rate increase as soon as next month, raising the specter of capital flows out of riskier assets.

Raw-material producers led Brazilian equities toward a one-month low. Egyptian stocks posted a weekly loss after an EgyptAir plane went missing with 66 people on board. South African gold mining companies dropped, ending a four-day rally in the nation’s benchmark gauge. Stocks in the Middle East slid to a five-week low, led by Dubai, as oil prices retreated. The ruble fell the most among currencies. The premium investors demand to hold emerging-market sovereign bonds over U.S. Treasuries widened for the first time in four days.

Minutes of the April Fed meeting showed most officials judged a rate increase next month to be appropriate if the economy improves in the second quarter. That followed repeated assertions by policy makers that the markets may have underestimated the likelihood of action at the June 14-15 meeting. Following the release, traders of Fed funds futures sent the odds of a June move to 26 percent from 4 percent on Monday.

“Bets for a June Fed hike have gone through the roof, providing a negative backdrop for emerging-market assets,” said Joseph Dayan, the head of markets at BCS Financial Group in London. “We have had a good run and some investors were looking to take profit. This was the trigger that allowed that profit-taking to happen.”

Stocks 
The MSCI Emerging Markets Index dropped 1.7 percent to 781.08 as of 11:20 a.m. in New York. All the 10 industry subgroups fell, led by energy and commodity companies. The benchmark gauge’s valuation, based on its price as a multiple of estimated earnings, fell to 11.1, the lowest level since February, after wiping out its gains for the year.

The EGX 30 Index dropped 1.8 percent after an Airbus A320 en route from Paris to Cairo went missing over the Mediterranean Sea. The incident follows a string of aviation-related events involving Egypt, including the October crash of a Russian airliner en route from Sharm-el-Sheikh to St. Petersburg that killed 224 people. An EgyptAir flight was hijacked to Cyprus in March.

Brazil, Russia 
The Ibovespa declined 1.6 percent in Sao Paulo. Steelmaker Usinas Siderurgicas de Minas Gerais SA fell the most on the benchmark gauge, followed the the Brazilian state-controlled oil company Petroleo Brasileiro SA.

AngloGold Ashanti Ltd. tumbled 5 percent in Johannesburg and Gold Fields Ltd. lost 6.1 percent as the precious metal dropped for a second day. The FTSE/JSE Africa All Share Index slid 0.8 percent.

Stock gauges in Russia and India each fell at least 1 percent. The Shanghai Composite Index was little changed, while a gauge of Chines companies traded in Hong Kong slipped 0.7 percent.

Pakistan shares extended a record high on speculation MSCI Inc. may upgrade the nation to an emerging market from frontier status. The index provider, which put Pakistan on its review list, will announce the decision by June 14. Anupgrade may lead to inflows into the market, according to Hasnain Malik, head of frontier-markets strategy at London-based Exotix Partners.

The MSCI Emerging Markets Currency Index fell 0.8 percent, taking its decline in May to 3.2 percent. The ruble declined 1.7 percent. Oil, Russia’s biggest export, tumbled 2.3 percent in London.

The premium for emerging-market bonds over Treasuries widened eight basis points to 394, according to JPMorgan Chase & Co. indexes.

The yield on Russia’s 10-year securities increased seven basis points to 8.93 percent. The Indonesian yield rose 17 basis points to 7.87 percent as the central bank left borrowing costs unchanged.

Source: Bloomberg Business News