Emerging Stocks Decline to 6-Week Low on Fed as Rupee Slumps

Emerging market shares dropped to 6-week low after Fed minutes showed wide support for stimulus cuts, fueling concerns capital outflows will accelerate. Indian rupee weakened to record low. SM (SM Investments Corporation) tumbled 8.4% in Manila, dragging Philippine Stock Exchange Index to the steepest intraday plunge since 2008. Philippine peso weakened 1.1% against dollar, whereas govt. bonds yields rose to one-month high. Malaysian stock index headed for longest losing streak since 2010 after government cuts its economic growth forecast. MSCI Emerging Markets Index fell 1.1% to 913.80 in Hong Kong heading for 6^th day of declines. The faltering growth outlook of Asia and prospect of reduced United States stimulus fueled a selloff of developing-country shares that have lost around $1 trillion in 2013.

Fed officials were comfortable with Ben Bernanke, Chairman’s plans to begin reducing bond purchasing in 2013 should the economy improve. Laurentia Amica Darmawan, Fund Manager at First State Investments said it is a signal to investors to reduce their emerging markets exposure. The tapering could see the American dollar reinforcing so what’s the point of investing in emerging market assets?

Industry Groups

All ten industry groups in developing nation index of MSCI slid, led by consumer staple and industrial companies’ shares. The broad measure has dropped 13% in 2013, unlike 11% increase in MSCI World Index of developed country shares. The developing country index trades at 9.7 times projected 12-month earnings, lower than 13 times of MSCI World. Philippine Stock Exchange Index lost as much as 6.9% as local markets resumed trading after 3-day closure. The stock exchange was closed and trading of debt and currencies was halted this week due to public holiday yesterday and floods in Manila. SM Investments, owner of the largest shopping mall operator in Philippines headed for lowest close since 25^th June.

Growth Forecast

FTSE Bursa Malaysia KLCI Index declined 1.7%, poised for the lowest close since 3^rd May. That’s the gauge 7^th day of declines. Central Bank of Malaysia cut its 2013 forecast for growth yesterday after 2^nd quarter expansion missed economists estimates. Rupee slumped to an all-time low and Indian shares swung between profits and losses. International funds have cut holdings of Indian debt by $10.1 billion since Ben first flagged the paring of stimulus on 22^nd May.

Hariyanto Wijaya, Analyst at PT Mandiri Sekuritas said that Indonesian coal producing companies – PT Tambang Batubara Bukit Asam surged 6.4% and PT Indo Tambangraya Megah jumped 5.3% in Jakarta as demand from China is expected to enhance. SHCOMP (Shanghai Composite Index) added 0.1% as a report signaled Chinese manufacturing expanded in August and added to signs the 2^nd largest economy of the world is reinforcing after a 2-quarter slowdown. The preliminary reading of 50.1 for Purchasing Managers’ Index released by Markit Economics and HSBC Holdings Plc compares with 48.2 median estimates in Bloomberg News survey of 16 economists.

JCI (Jakarta Composite Index) tumbled 2.3%, dropping about 20% from its 20^th May peak. SET Index of Thailand slumped 1.9% to the lowest level since 30^th November. Taiex index of Taiwan fell 0.4% as markets resumed trading today after tropical storm. Trading volumes on KLCI were 114% above its 30-day average and 75% higher for Indonesian index.