[LONDON] Emerging-market currencies weakened and stocks fell to a two-week low as investors grappled with the prospect for higher US interest rates. Malaysia's ringgit tumbled to a 17-year low and a bomb attack in Turkey sent the lira plunging to a record.
A gauge tracking 20 developing-nation currencies declined for a fifth day, losing 0.3 per cent to a record, as the ringgit depreciated 1.6 per cent and the lira slid as much as 1.2 per cent to 3.0465 per US dollar.
Investors have dumped riskier assets since China's shock devaluation almost a month ago worsened the outlook for trade with the world's second-largest economy, while also making a Federal Reserve interest-rate increase this month less certain.
"The momentum remains weak ahead of the Fed meeting" on Sept 16-17, said Martial Godet, the head of Europe and emerging-market equities and derivatives strategy at BNP Paribas SA in Paris, who recommends avoiding energy and commodity producers, while focusing on Taiwan, Korea, Poland and, for those prone to taking risks, China.
"With most markets already losing money in 2015, the appetite for risk is low." While small-cap stocks in Shanghai rose after a People's Bank of China official said the rout that wiped out US$5 trillion of the nation's equities was nearing an end, China's biggest companies plunged on speculation state-backed funds had stopped buying.
PT Perusahaan Gas Negara sank 11 per cent in Jakarta on a government plan to lower industrial gas prices. The Borsa Istanbul 100 Index retreated for a second day as President Recep Tayyip Erdogan vowed to escalate the government's campaign against Kurdish separatists after a roadside bomb killed Turkish soldiers.
The MSCI Emerging Markets Index decreased 1.3 per cent to 778.42 by 12:30 pm in London, pushing its price-to-earnings ratio for the next 12 months to 10.3 times, a 31 per cent discount to developed-country stocks on the MSCI World Index. The 2.6 per cent slump in the Jakarta Stock Exchange Composite Index led declines in emerging markets, while shares in Saudi Arabia, Nigeria and Kuwait gained at least 0.8 per cent.
The odds that the Fed will raise rates for the first time since 2006 this month rose to 32 per cent on Monday from 30 per cent on Friday after data showed US unemployment fell to the lowest level since April 2008. The likelihood was 48 per cent on Aug 10, the day before the yuan devaluation.
"While concerns over the Fed rate can lead to outflows from emerging markets, the sooner they do it the better as it will remove huge uncertainties," said Jeffrosenberg Tan, a money manager at PT Sinarmas Asset Management. "Once the uncertainties about the rate are gone, it would be a good time to buy stocks."
All 10 of the MSCI Emerging Markets Index's industry gauges dropped on Monday, led by telecommunications and health-care stocks. Among currencies, the South Korean won, Indian rupee and Indonesian rupiah weakened at least 0.5 per cent.
As Brent crude declined for a second day, the ruble strengthened 0.1 per cent on speculation the Bank of Russia will decide not to lower interest rates at a meeting on Friday. The Russian currency has lost 18 per cent of its value in the past three months, the most after Brazil's real among 24 developing countries.
"If markets would sell-off further, we would add some emerging-market risk," said Michael Ganske, who helps manage about US$4.5 billion as head of emerging markets at Rogge Global Partners Plc in London. Ganske said he favors the Indian rupee, Mexican peso and ruble, while staying away from the Malaysian ringgit, Taiwanese dollar and Thai baht.
The ChiNext gauge of smaller Chinese companies climbed 2.1 per cent from a seven-month low. Officials attending the Group of 20 gathering in Turkey over the weekend predicted stabilisation in the currency and stock markets in the coming weeks. People's Bank of China Governor Zhou Xiaochuan said state intervention prevented systemic risk and stopped a free-fall.
Perusahaan Gas Negara slid to the lowest level since September 2011. Indonesia plans to lower gas prices sold to industrial users by reducing government revenues from gas sales, said IGN Wiratmaja Puja, a director general at the energy ministry.