London: Emerging market stocks fell, while currencies strengthened, as speculation increased that central banks will boost interest rates to fight inflation.
The MSCI Emerging Markets Index slipped 0.3% to 1,182 at 11.31am in London, with three stocks declining for every two that rose. China’s Shanghai Composite Index dropped 0.3% before government reports on Friday that may show economic growth slowed and inflation accelerated. Poland’s zloty strengthened 0.4% against the euro after a report on Wednesday showed inflation reached a two-year high.
China’s first quarter gross domestic product (GDP) growth slowed to 9.4% from 11.9% a year earlier, while inflation accelerated to 5.2%, the highest level since July 2008, according to the median estimates of economists surveyed by Bloomberg. Singapore said on Thursday that it will allow more gains in the currency to combat inflation, while central bank policymakers in Poland signalled further rate increases.
“Inflation remains a key concern, and there may be additional tightening in China,” said Lim Chang Gue, a fund manager in Seoul at Samsung Asset Management Co., which oversees about $29 billion.
The MSCI emerging market index has climbed 2.9% this year, trailing a 4.5% gain in the MSCI World Index of advanced country shares, as record food prices and surging oil prompted central banks in developing countries, including Brazil, Russia, India and China, to lift borrowing costs. The emerging market gauge is valued at 11.6 times estimated earnings, down from 13 times a year ago, data compiled by Bloomberg show.
The Shanghai Composite slipped from a five-month high. China Vanke Co. Ltd and Poly Real Estate Group Co. Ltd, the country’s biggest developers, fell more than 1.4% after Moody’s Investors Service cut its outlook for the property industry.
China Construction Bank Corp. retreated 1.3% in Hong Kong. Chinese lenders may have to raise about 860 billion yuan ($131 billion) of stock over six years to meet stricter capital rules, according to estimates from the industry regulator, a person with knowledge of the matter said.
Russia’s Micex Index slid 1%, heading for the lowest level this month, as mining companies including OAO GMK Norilsk Nickel dropped on lower metals prices. Poland’s WIG20 Index slipped 0.5% as KGHM Polska Miedz SA, the copper producer with the biggest European mine output, declined 0.7%.
Poland’s annual inflation rate accelerated to 4.3% in March, the highest in more than two years, the Warsaw-based statistics office said on Thursday. An interest rate increase in May would be justified, PAP Newswire cited Anna Zielinska-Glebocka, a policymaker, as saying after the report. The central bank will need to act, Jan Winiecki, also a member of the rate-setting board, told TVN CNBC television in an interview.
The extra yield investors demand to own emerging-market debt over US Treasuries was unchanged at 2.6 percentage points, according to JPMorgan Chase & Co.’s EMBI+ Index. The Markit iTraxx SOVX CEEMEA Index of credit default swaps for emerging Europe, the Middle East and Africa rose one basis point to 186, according to data provider CMA in London.
Piotr Skolimowski in Warsaw contributed to this story.