Bloomberg
London


Emerging-market currencies and stocks fell to five-week lows as US jobs data bolstered the case for the Federal Reserve to start raising interest rates, fanning concern that capital outflows from developing countries will worsen as economic growth languishes.
Malaysia’s ringgit, the Thai baht, India’s rupee and South Korea’s won retreated at least 1% against the dollar. Indian shares fell after Prime Minister Narendra Modi’s party lost an election in the country’s third-most-populous state. The zloty strengthened as Societie Generale  called the Polish currency its sole bullish trade in emerging markets. Egyptian shares slumped to the lowest level since September 13.
A gauge tracking 20 currencies in emerging markets weakened 0.4% by 1:58 pm in London, building on a retreat last week after the biggest monthly surge in US payrolls this year damped the allure of riskier assets. Resuming a cycle of rising US rates will diminish the appeal of the higher yields offered in developing countries at a time when weakening oil prices and China’s slowing growth are curtailing trade.
“Capital flows to emerging markets should continue to be negative as US interest rates move higher,” said Maarten-Jan Bakkum, a senior emerging-markets strategist at NN Investment Partners in The Hague. “Risk-reward in emerging markets is much less attractive due to the weak growth environment and more yield can be found in US bonds.”
Bakkum prefers investing in India, the Philippines, Chile, Mexico and Poland because they aren’t as dependent on foreign cash to finance their current accounts. Brazil, Turkey, Malaysia, Thailand and Russia are more prone to risks.
Investors pulled money out of US exchange-traded funds that buy emerging-market stocks and bonds for the second straight week, with Taiwan accounting for the biggest outflows.
The MSCI Emerging Markets Index dropped 1% to 844.36 as all 10 industry groups retreated, led by a 1.6% slump in industrial companies from Eicher Motors  in New Delhi to SK Holdings Co in South Korea. Hyundai Merchant Marine Co plunged 14% in Seoul after a report of a possible merger with Hanjin Shipping Co.
The ringgit slid to the weakest level since October 2, South Africa’s rand fell to a record for a second day and the Brazilian real ended a two-day advance. India’s rupee weakened to the lowest level since September 16 and the S&P BSE Sensex Index lost as much as 2.3%. Concern is growing that the election defeat by Prime Minister Narendra Modi’s Bharatiya Janata Party in Bihar will hamper his ability to push through much-needed economic policies to strengthen the economy.
“Any bullish short-term arguments for emerging markets have evaporated,” Societe Generale foreign-exchange strategist Jason Daw said in a research note. “The cloud of Fed tightening is too dark and macro too unsupportive to initiate any long EM exposure on tactical or fundamental grounds at this point.”
Poland’s zloty advanced 0.4% to 4.2589 per euro, the biggest gainer among developing-nation peers. Daw said buying the zloty with euros is its only bullish trade in emerging markets.
While bonds across emerging markets fell, the premium investors demand to own emerging-market debt over US Treasuries narrowed one basis point to 375, the smallest gap since August, according to JPMorgan Chase & Co indexes.
Chinese bonds tumbled by the most in two years as the government’s plan to resume initial public offerings by year-end fuelled concern investors will switch out of debt and into equities. Under the plan announced late Friday by the securities regulator, investors will no longer be required to deposit funds when applying for new share subscriptions. The Shanghai Composite Index rose 1.6%.
The rate on Turkish two-year notes increased 14 basis points to 10.18%.Shares in Dubai rose 1% after entering a bear market on Sunday as Brent crude climbed 0.5% to $47.65 a barrel, helping boost equities in oil producers such as Saudi Arabia, Abu Dhabi and Russia.
The EGX 30 Index declined 2.8% as foreign investors dumped the most shares since April. The currency is coming under increased pressure after Russia, Egypt’s biggest source of tourists, suspended flights to the North African country as investigators suspect last month’s Metrojet crash was caused by a bomb.