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Emerging Stocks Retreat From Three-Month High on Fed Rate Bets

Emerging Stocks Retreat From Three-Month High on Fed Rate Bets

Written by Natasha Doff and Nguyen Kieu Giang | From Bloomberg

Emerging-market stocks and currencies pared their best monthly gains in more than half a year on bets rising U.S. inflation will spur interest-rate increases, curbing appetite for riskier assets.

OAO Magnit led retailers’ declines in Russia, while the ruble trimmed its best-ever monthly advance. The Turkish lira fell to a record amid concern the government will restrict the central bank’s autonomy. The Ibovespa was headed for its biggest monthly rally since 2009 as Brazil’s budget surplus beat estimates. Ukraine’s currency and bonds rose after policy makers said they will boost restrictions on capital operations.

The MSCI Emerging Markets Index decreased 0.3 percent to 990.42 at 12:21 p.m. in New York. The gauge is still up 3 percent in February, the steepest monthly increase since May, driving valuations to a 2010 high. A bigger-than-forecast gain in U.S. core inflation sent the dollar surging Thursday. A gauge of 20 emerging-market currencies tracked by Bloomberg was poised for its first monthly advance since June.

“U.S. bond yields are rising again, putting pressure on Turkey and EM currencies in general,” Maarten-Jan Bakkum, a developing-country strategist at ING Groep NV in The Hague, said by e-mail. “It is all about the sustainability of capital flows to EM. Currencies are most vulnerable, but equity investors have less risk appetite if the currencies go down.”

The yuan lost 0.2 percent to a two-year low as China’s central bank cut its reference rate by the most in a month. The Bloomberg emerging-currency index slipped 0.1 percent.

Cease-Fire

Ukraine’s hryvnia rallied 24 percent and the yield on the country’s dollar bonds maturing in April 2023 dropped 58 basis points. The central bank will strengthen limits on activities including paying dividends, Governor Valeriya Gontareva said on Friday.

The country will continue to pull back troops in the east as part of the cease-fire agreed in Minsk, Serhiy Halushko, a spokesman for the Defense Ministry in Kiev, told reporters.

The ruble fell 1.2 percent versus the dollar, set for a monthly advance of 12 percent. The Micex index dropped 0.1 percent, led by a 2.3 percent retreat in Magnit, Russia’s largest retailer. Brent crude headed for its biggest monthly gain since 2009 in London.

The MSCI developing-nation gauge has risen 3.6 percent this year and trades at 11.9 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has gained 3.8 percent in 2015 and is valued at a multiple of 16.8.

Sustainable Rebound

“How sustainable this rebound is will depend on the sustainability of the rebound in the oil price,” Yury Tulinov, head of research at OAO Rosbank in Moscow, said in an e-mail. “The ruble’s now driven by oil and geopolitics with the former having a much greater weight on intraday moves.”

The Ibovespa rose 1 percent, extending February’s jump to 11 percent, the biggest gain since October 2011. Brazil posted its first monthly nominal budget surplus in two years as the government endeavors to tighten fiscal accounts and shore up investor confidence. Lender Banco Bradesco SA added 1.6 percent.

The lira dropped as much as 0.9 percent after Economy Minister Nihat Zeybekci said the Central Bank of Turkey’s independence should be conditional on the body taking “national interest” into account. Turkish bonds were headed for their worst month in more than six years.

All but eight of the 10 industry groups in the emerging- markets equity index decreased, led by telecommunications and health-care companies. The Shanghai Composite Index added 0.4 percent, capping a monthly gain, before the start of the annual National People’s Congress meeting next week. The Hang Seng China Enterprises Index added 4 percent in February.

India’s S&P BSE Sensex rose the most since Jan. 20 on expectations that Prime Minister Narendra Modi will use the budget to improve infrastructure, boost manufacturing, cut food subsidies and simplify taxes.

The premium investors demand to hold emerging-market debt rather than U.S. Treasuries slipped four basis points to 353, according to JPMorgan Chase & Co. indexes.