Emerging-Market Currencies Extend Selloff

Longest selloff since 2000 continues, as investors prepare for U.S. rate increases and worry about Chinese yuan.

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 amid a slump in oil.

A gauge tracking 20 of the most-traded developing-nation currencies dropped 0.3 percent, with the ringgit weakening to the lowest level since 1998 and Thailand’s baht slumping as an explosion struck Bangkok’s central shopping district. The currency measure has fallen for eight straight weeks as the prospect of higher U.S. interest rates and the shock devaluation of the yuan magnified risks. The MSCI Emerging Markets Index of stocks retreated 1.1 percent to 854.41 at 11:30 a.m. in New York.

China’s devaluation “will be something that will shape the rest of the year for emerging-market currencies, especially given 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.

Svendsen expects emerging currencies will stay lower for the rest of 2015, with a trough about the time the Federal Reserve 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.

Goldman Sachs Group Inc. lowered its forecasts for the yuan on Monday, saying slower growth in the world’s second-largest economy will add to pressure on the currency. The yuan will decline to 6.60 per dollar in 12 months, Goldman Sachs said, adding that a “few small steps” for the currency may trigger a “big leap lower” for peers in developing countries.

Bonds also sold off on Monday, with the premium investors require to own emerging-market debt over U.S. Treasuries climbing 0.04 percentage point to 3.83 percentage points, according to JPMorgan Chase & Co. indexes. Malaysia’s debt underperformed peers in Asia, and Turkey’s notes led declines in emerging Europe. Both countries have been rattled by political crises that are driving out investors.

The baht dropped 0.7 percent to 35.51 against the dollar as local reports in Thailand said as many as 15 people were killed in the explosion.

In Turkey, where coalition talks failed last week, the Borsa Istanbul 100 Index fell to a five-month low and the lira slid to a record 2.8678 per dollar. Malaysian shares sank to a three-year low, and the ringgit depreciated 0.4 percent, to 4.1028 per dollar. The currency’s steepest weekly slide since 1998 is evoking memories of the clash between then-Prime Minister Mahathir Mohamad and hedge-fund manager George Soros.

As oil in the U.S. traded near a six-year low, Russia’s ruble retreated 0.5 percent to 65.29 against the greenback. The dollar-denominated RTS Index of equities fell 1.6 percent, while the Nigerian Stock Exchange All Share Index decreased 2.6 percent.

Currencies trimmed losses Monday after data showed manufacturing in the New York region unexpectedly slumped in August, leading to some speculation that the Fed will refrain from an increase in borrowing costs a little longer.

Nine out of 10 industry groups in the MSCI Emerging Markets Index fell Monday, led by technology and energy companies. SapuraKencana Petroleum Bhd., Malaysia’s biggest oil and gas services provider, tumbled the most on record.

 

--With assistance from Choong En Han in Kuala Lumpur and Ye Xie in New York.

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