Dubai - Emerging-market stocks and currencies were poised
for the biggest drop in a month after the Federal Reserve combined an
anticipated interest rate increase with a surprise signal it will be more
hawkish than expected next year. The dollar strengthened for a third day.
“This is a Fed that could be tighter than we thought,”
said Mohamed El-Erian, the chief economic adviser at Allianz and a Bloomberg
View columnist. “That’s what really moved the market.”
The Federal Reserve boosted borrowing costs by 25 basis
points and forecast a steeper path in 2017. That could spell trouble for
emerging markets as higher dollar rates reduce the appetite for riskier assets.
Policy makers in Saudi Arabia, Qatar, Kuwait, the United Arab Emirates and
Bahrain raised interest rates since the Fed’s announcement on Wednesday.
Bloomberg’s Richard Breslow: The MSCI emerging currency
index has given up the ghost after trying to claw its way back above the
200-day moving average. Its Fibonacci retracement chart has gone from looking
cautiously optimistic to a classic fail.
Markets
The MSCI Emerging Market Index fell 1.4 percent The MSCI
EM Asia Index retreated 1.1 percent as all but one of the 10 industry gauges
fell, led by energy shares The MSCI Emerging-Markets Currency Index declined
0.8 percent Dubai FM General Index slipped as much as 1 percent Indonesian
government bonds led declines across most emerging debt, with the yield on
10-year bonds rising 17 basis points to 4.42 percent; the central bank kept
interest rates unchanged Yield on China’s 2026 local-currency bonds added 15
basis points to a record 3.34 percent Yield on South Africa’s local-currency
10-year bonds advanced 15 basis points as the rand weakened 0.8 percent South
Korea’s won was set for the biggest drop in a month Russian Ruble is the
biggest gainer in emerging currencies, strengthening 0.8 percent
Research
The outlook is negative for Turkish, Middle Eastern and
South African non-financial companies in 2017 because of expected low economic
growth, “weak” consumer and business confidence, and foreign exchange swings,
Moody’s Investors Service says BNP Paribas favors Indian stocks, Indonesian
bonds and currency and Brazil’s real in emerging markets Bank of Korea is
expected to cut interest rates next year because of worsening growth outlook
after holding on Thursday, Capital Economics says
-With assistance
from Constantine Courcoulas and Tracy Alloway.
BLOOMBERG