Jan. 24 (Bloomberg) — Global stock tumbled the most since June, as the biggest drop in emerging markets in two months prompted investors to seek havens in Treasuries, German bunds and yen. Natural gas reached a three-year high.
The MSCI All-Country World Index fell 1.8 percent at 3:40 p.m. in New York. The Standard & Poor’s 500 Index slid 1.8 percent and the Dow Jones Industrial Average headed toward its biggest weekly drop since 2012. The MSCI Emerging Markets Index tumbled 1.4 percent, extending its 2014 decline to 5.2 percent. The yen rose as emerging-market currencies had the worst selloff in five years. Ten-year Treasury yields slipped to an eight-week low. Natural gas surged above $5 for the first time since 2010 on forecasts for cold weather in the U.S.
Stocks retreated this week as signs of weakness in China’s economy added to concern over the impact of cuts to the U.S. Federal Reserve’s stimulus program. China’s banking regulator ordered its regional offices to increase scrutiny of credit risks in the coal-mining industry, said two people with knowledge of the matter, signaling government concern about possible defaults.
“The current environment is potentially very toxic for emerging markets,” Eamon Aghdasi, a strategist at Societe Generale SA in New York, said in a phone interview yesterday. “You have two very troubling things: uncertainty about the Fed policy, combined with concerns about growth, particularly in China. It’s difficult to justify that it’s time to go out and buy emerging markets at the moment.”
More than $940 billion has been erased from the value of emerging-market equities since the Fed signaled in May that it could start scaling back bond purchases that boosted demand for higher-yielding assets. A Bloomberg gauge tracking 20 emerging- market currencies fell to the lowest level since April 2009 today, tumbling more than 9 percent over the past 12 months, bigger than any annual decline since it slid 15 percent in 2008.
The Turkish lira weakened 1.9 percent to 2.3360 per dollar, extending declines for the month to about 8.7 percent. The South African rand sank 1 percent to the weakest level since October 2008. Argentina’s peso depreciated 12 percent yesterday to an unprecedented low as policy makers devalued the currency by reducing support in the foreign-exchange market. It lost another 1.5 percent today.
Argentina will ease currency controls after the peso’s slide brought the rate to a level Cabinet Chief Jorge Capitanich said was acceptable. Argentines will be able to buy dollars for savings in line with their income more than two years after first installing restrictions on foreign-currency purchases, he said today in Buenos Aires.
“It looks as though we may be about to enter the critical phase,” said John-Paul Smith, global emerging-market equity strategist at Deutsche Bank AG in London. “All of the structural vulnerabilities which have been apparent on a micro level for the past three years are now
beginning to undermine investor confidence, so that what has so far mainly been a relative underperformance story is now starting to impact absolute performance of equities in general and EM equities in particular.”
The European Central Bank, the Bank of England, the Bank of Japan and the Swiss National Bank jointly decided to reduce the offering of dollar loans to banks, the ECB said today. Fed policy makers meet Jan. 28-29 and will probably cut another $10 billion from their monthly bond-buying program, according to the median forecast of economists surveyed by Bloomberg this month.
The U.S. central bank decided at its December meeting to start cutting its monthly bond purchases by $10 billion to $75 billion. Three rounds of Fed monetary stimulus helped the S&P 500 rise more than 170 percent from a 12-year low in 2009.