Emerging market stocks decline as odds of a December US interest rate rise increase

Investors talk in front of an electronic board showing stock information at a brokerage house in Shanghai.
Investors talk in front of an electronic board showing stock information at a brokerage house in Shanghai.PHOTO: REUTERS

KUALA LUMPUR (Bloomberg) - Emerging-market stocks fell, with a benchmark index heading for the first loss in four days as the odds rose of a US interest-rate increase before the end of the year. China's Shanghai Composite Index was poised to enter a bull market as an unprecedented state rescue effort pays off.

China's Shanghai Composite Index advanced 3.1 per cent, taking its rebound from this year's low on Aug 26 to more than 20 per cent. Hong Kong's Hang Seng China Enterprises Index gained 1.1 per cent, while Indonesia's benchmark equity gauge fell after the country's economic growth missed forecasts. Malaysia's ringgit led a decline among emerging Asian currencies.

The MSCI Emerging Markets Index lost 0.2 per cent to 866.81 at 1pm Hong Kong time. Futures traders boosted odds of a December US rate hike to more than 56 per cent, from as low as 27 per cent three weeks ago, damping demand for riskier assets as Federal Reserve chair Janet Yellen said improvements in the US economy had set the stage for a potential rate increase. Ordinary investors are returning to Chinese shares as the market responds to the government's extreme measures to shore up prices and halt a US$5 trillion crash.

In Singapore, the Straits Times Index was nearly flat at 2.25pm, down just 1.96 points at 3,038.52.

"The US rate hike is already a foregone conclusion, it's just a matter of when," Ang Kok Heng, chief investment officer at Phillip Capital Management, which manages US$630 million, said in Kuala Lumpur. "China's market is still uncertain and volatile. Even if it's a bull market, it's dominated by retail investors and very sentiment-driven. We are still accumulating stocks and switching some portfolios."

The developing-nations measure has fallen 9.4 per cent this year and trades at 11.4 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has gained 0.3 per cent and is valued at a multiple of 16.

Seven out of 10 industry groups in the emerging-markets index declined, led by raw-material and consumer-staples companies. LG Chem slid the most in three weeks in Seoul. Cosmetics maker Amorepacific Corp fell 3.1 per cent in Seoul after Goldman Sachs cut its ratings on the stock to neutral from buy. South Korea's Kospi index dropped 0.2 per cent and the won weakened 0.5 per cent.

Ms Yellen, speaking before the House Financial Services Committee, said a December rate hike is possible if reports continue to assure policy makers that inflation will accelerate over time. Her sentiments were echoed by Fed Bank of New York president William Dudley at a press briefing.

Indonesia Slows PetroChina Co climbed to a two-month high as the Shanghai Composite extended Wednesday's 4.3 per cent advance. The government has responded to the equity-market crash that began in June by banning major stockholders from selling shares, curbing short selling and directing state funds to purchase stocks. China has cut its benchmark interest rate six times in the past year to a record low of 4.35 per cent to keep growth on track.

Indonesia's Jakarta Composite Index sank 0.4 per cent and the rupiah fell. The country's economy grew less than analysts estimated last quarter, underscoring the challenge for the government as it seeks to accelerate spending and bolster growth. Gross domestic product rose 4.73 per cent in the three months through September from a year earlier, the statistics bureau said in Jakarta.

Malaysia's ringgit weakened 0.9 per cent, leading declines among all Asian currencies, as the Fed's comments fueled gains in the dollar. A Bloomberg measure of 20 developing-nation currencies extended declines for a second day.

Tenaga Nasional surged the most since December 2013 in Kuala Lumpur after Edge reported its bid for 1Malaysia Development Bhd's energy assets was 20 per cent lower than the closest competing bid. Philippine shares slid for a second day, while equity gauges in India and Taiwan also fell.