Emerging-market stocks extend losses on persistent oil weakness

DEC 29, 20154:25 PM

[KUALA LUMPUR] Emerging-market equities fell, extending the biggest annual decline in four years, as persistent weakness in commodities weighs on the global growth outlook.

The MSCI Emerging-Markets Index dropped for a second day, driven by losses in technology and raw-material stocks, as deteriorating risk appetite boosted demand for healthcare and utilities. A measure tracking 20 currencies in developing nations retreated 0.1 per cent, while Indonesia's rupiah and the South Korea won topped declines in Asia.

A global oil supply glut that's pushed Brent crude to an 11-year low shows few signs of abating, with Iranian exports set to come on stream once economic sanctions are lifted. Saudi Arabia unveiled a budget on Monday that factors in reduced prices even as the world's biggest producer maintains output to defend market share from the US Slowing growth in China, a major importer of resources products, is compounding the bleak outlook.

"Low commodity prices will continue to affect developing economies through 2016," said Jitra Amornthum, the Bangkok-based head of research at Finansia Syrus Securities Pcl. "Investors should focus on stocks that depend on domestic consumption."

The MSCI index dropped 0.2 per cent to 798.58 as of 3:51 pm in Hong Kong, after falling 0.5 per cent on Monday. It is down 16 per cent this year, following combined losses of more than 9 percent in the past two. The gauge is valued at 11 times projected 12-month earnings, compared with 15.8 for the MSCI World Index, which declined 2.2 per cent in 2015.

Consumer electronics company Casetek Holdings Ltd. slid 8.9 percent in Taipei, the biggest drop since August. Taiwan's Pegatron Corp., which makes printed circuit boards and desktops, fell 4.1 per cent to a four-month low. South Korea's Posco slumped 3.7 per cent, leading declines in material stocks.

Brent crude fell 3.4 per cent on Monday, halting a two-day rally. It was at US$36.66 a barrel on Tuesday and reached $35.98 last week, the lowest since 2004. The Bloomberg Commodity Index of 22 raw materials is trading 2.7 per cent off its weakest level since 1999 touched earlier in December. Thailand's PTT Pcl and PTT Exploration Pcl fell at least 1.7 per cent, pacing losses in energy stocks.

The rupiah and South Korea's depreciated 0.7 per cent and 0.4 per cent, respectively. The developing-nation index is down 11 per cent in 2015, when all but one of the 24 emerging-market exchange rates tracked by Bloomberg weakened, led by the Argentine peso and Brazilian real.

The slide in energy prices has particularly hit oil exporters such as Malaysia and Russia, with the ringgit and ruble both losing about 19 per cent this year.

"We still believe that emerging-market currencies are going to be pressured," said Mitul Kotecha, head of Asian foreign- exchange and interest-rate strategy at Barclays in Singapore.

"Lower commodity prices, a strong dollar and general Federal Reserve rate hikes, should weigh on emerging markets."

BLOOMBERG