Emerging currencies extend worst selloff since turn of century

[LONDON] Emerging-market currencies fell, extending the longest stretch of weekly declines since 2000, as Malaysian assets tumbled, Turkey's lira touched a record low for a third day and the ruble and Russian stocks retreated with oil.

A gauge tracking 20 of the most-traded developing-nation currencies dropped 0.3 per cent. The ringgit weakened to the lowest level since 1998 and the Taiwanese dollar lost 0.9 per cent. The currency measure has fallen eight straight weeks as the prospect for higher US interest rates and the shock yuan devaluation magnified the risks facing developing nations. The MSCI Emerging Markets Index of equities decreased to a four-year low and bonds fell.

China's devaluation "will be something that will shape the rest of the year for emerging-market currencies, especially the fact that people view this as a clear indication that the Chinese authorities are worried about the state of their economy," said Anders Svendsen, an analyst at Nordea Bank A/S in Copenhagen.

Mr Svendsen expects emerging currencies will stay lower for the rest of 2015, with a trough around the time the Fed lifts interest rates, probably in September. Underpinning the potential fallout of a weaker yuan on countries that export to China, Morgan Stanley dubbed Brazil's real, Peru's sol and Asian currencies in South Korea, Thailand and Singapore as part of the "Troubled Ten." China is the biggest export destination for all these nations, data compiled by Bloomberg show.

The "lukewarm" recovery means China won't be able to rely on exports to drive expansion, said Hans Redeker, the London-based global head of foreign-exchange strategy at Morgan Stanley, which coined the so-called Fragile Five in 2013.

Investors pulled money from emerging-market equity funds for a fifth straight week, according to a report from EPFR Global. The MSCI Emerging Markets Index retreated 1.1 per cent to 854.25 by 11:13 am in London.

Bonds also sold off on Monday. Malaysian debt underperformed peers in Asia and Turkish notes led declines in emerging Europe. Both countries have been rattled with political crises that are driving out investors.

In Turkey, where coalition talks failed last week, the Borsa Istanbul 100 Index headed for the weakest close since March and the lira slid to as weak as 2.8542 per US dollar, an all-time low. Malaysian shares sank to a three-year low and the ringgit depreciated 0.5 per cent to 4.0995 per US dollar. The currency's steepest slide since 1998 is evoking memories of the clash between then-Prime Minister Mahathir Mohamad and hedge-fund manager George Soros.

Oil's decline below US$50 a barrel in the past week has weighed on assets of commodity producers. Russia's ruble - also listed among the so-called Troubled Ten - retreated 0.8 per cent to 65.496 against the greenback. The dollar-denominated RTS Index of equities fell 1.3 per cent.

"Outflows will continue from emerging markets until the Fed confirms a date for the rate hike," said Danny Wong Teck Meng, chief executive officer of Kuala Lumpur-based Areca Capital Sdn, which manages about US$224 million in assets.

"We are switching to stocks that have been sold down." A US manufacturing report due Monday may offer clues on the timing of the Fed's first interest-rate increase since 2006.

All 10 industry groups in the MSCI Emerging Markets Index fell on Monday, led by technology and energy companies. SapuraKencana, Malaysia's biggest oil and gas services provider, tumbled the most on record, and Bumi Armada Bhd sank 10 per cent.

Net outflows from Chinese and Hong Kong equities reached US$531 million in the period to Aug 12, the ninth week of sales out of the past 10, China International Capital Corp. said, citing EPFR Global. Hong Kong's Hang Seng China Enterprises Index decreased to an eight-month low.

Vietnam's VN Index has dropped 10 per cent from its July peak amid concern about the nation's export growth after China devalued its currency.

BLOOMBERG