Emerging-market stocks and currencies extended their longest selloff since June as investors weighed the outlook for policy accommodation by global central banks amid the prospect of a prolonged oil glut.
Gauges of developing-nation equities and exchanges rates fell for a fourth day, and government bonds retreated across Asia, as volatility returned to financial markets. Indonesia led the declines in shares Wednesday, with only Thailand and Vietnam bucking the trend. Malaysia’s ringgit dropped the most and was headed for its steepest three-day decline since May as a faltering recovery in crude prices dimmed the outlook for the oil-exporting nation’s finances.
A stocks rally fueled by optimism the U.S will hold off on raising interest rates next week has dissipated. A measure of swings in emerging-market shares was near a two-month high reached Monday as investors shifted focus to the likelihood of policy tightening by the Federal Reserve later this year at a time when central bankers in Europe and Japan are questioning the benefits of further stimulus.
“Our view is that (U.S.) rates will go up by 25 basis points by the end of the year,” said Kelvin Tay, regional chief investment officer at UBS Group AG’s wealth management business in Singapore. “That in turn should be positive for the dollar on a short term against the rest of the emerging-market currencies, and that basically means continued volatility in the bonds and equities markets.”
The MSCI Emerging Markets Index fell 0.2 percent to 883.87 as of 12:10 p.m. in Hong Kong, paring its 2016 gain to 11 percent. It is valued at 12.3 times the 12-month estimated earnings of its members. That compares with a multiple of 15.8 for MSCI World Index, which has advanced 1.8 percent this year.
All 11 industry groups in the developing nations’ gauge retreated, with real-estate shares declining for the fifth day. The measure’s 10-day volatility was near a two-month high of 21 reached Monday.
The MSCI Emerging Markets Currency Index dropped 0.2 percent, extending its 1.5 percent decline in the last three sessions. The ringgit retreated 0.6 percent, and has lost 2.1 percent in three days.
Indonesia’s rupiah fell 0.5 percent, the Philippine peso dropped 0.2 percent and India’s rupee lost 0.1 percent. China’s yuan rose 0.1 percent. Markets in the Middle East are shut Wednesday and South Korea’s are shut through Friday for local holidays.
Sovereign bonds maturing in 10 years fell in Indonesia, Malaysia and Thailand.