Emerging market stocks headed towards a six-month low as the Chinese sell-off deepened.
Investors also offloaded riskier assets as Greece’s membership of the European monetary union hung in the balance.
The MSCI Emerging Market Index, in which China has a weighting of almost 20 per cent, dropped 1.2 per cent to 932.19 late evening UAE time.
The developing-nation gauge has fallen 2.3 per cent this year and trades at 11.3 times projected 12-month earnings, a measure of value, data compiled by Bloomberg show. The MSCI World Index has gained 1.2 per cent in 2015 and is valued at a multiple of 16.
The lower the multiple, or price to earnings ratio, typically the more attractive a stock is.
In China, the Shanghai Composite Index dropped 1.3 per cent, taking the measure’s overall drop in the past month to 26 per cent.
“The logic says that people will become more risk-averse and given what’s going on will gravitate towards the safer assets,” said Sherif Salem, a portfolio manager at Invest AD, an Abu Dhabi-based asset manager.
Chinese stocks continued to slide despite interventions by authorities in the world’s second-largest economy to stem the bleeding with measures such as getting state run firms to buy equities.
The sell-off in the past month has wiped more than US$3.2 trillion off Chinese stocks and follows a huge rally that many observers said was speculative and not really based on reasonable expectation of growth.
Even after the collapse in the Shanghai Composite, the index is still up 15 per cent this year.
Elsewhere, Greece’s continuing woes have made investors skittish as they wait to see if the country’s leftist prime minister is able to buy more time from creditors in meetings in Brussels.
Emerging market equities have been among the most unloved assets in recent years as weakening demand for commodities globally has taken a toll on many of these nations that rely on exports such as oil, gas, wheat and sugar to bolster economic growth.
But because overall global growth has been lacklustre, this has meant price inflation has slowed and commodity prices have been declining or treading water. Oil, which fires up growth in the crude-rich Arabian Gulf, has been declining in part because of weakening demand from China as factories reduce output amid softening demand for the country’s exports.
Crude has shed about 50 per cent of its value in the past 12 months amid increasing production in countries such as the United States and waning demand from global economic uncertainty.
The drop in crude prices, also accompanied by a drop in other commodities such as steel, comes as demand from emerging markets wanes. That has been bad news for countries such as Brazil, Argentina and Chile that produce other commodities including coffee and copper.
While falling oil prices may be a concern for the world’s biggest energy producers, such as Saudi Arabia and the UAE, it has been a blessing for poorer countries that do not have much oil and gas, such as India, because they do not have to spend as much money importing oil. All this has cheered global investors and poured more than $13.8 billion into Indian equities last year.
“Commodity prices have already been pretty weak in the past quarter,” said Sebastien Henin, the head of asset management at The National Investor, an Abu Dhabi-based asset manager. “You can look at that from the opposite side. Some countries, such as China and India, they are net importers of commodities, they will benefit from that. It will be the opposite for Brazil and Russia but the developed world will also benefit from that.”
mkassem@thenational.ae
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