Emerging Stocks Slide Most in Three Weeks as U.S. Race Tightens

(Bloomberg) -- The Trump factor reverberated through emerging markets.

Stocks headed for their biggest decline in almost three weeks, the Mexican peso led a selloff in currencies and the sovereign bond-yield spread widened relative to U.S. Treasuries as investor appetite for riskier assets declined in the wake of polls showing Donald Trump and Hillary Clinton neck and neck in the U.S. election race. Polish and South Korean stocks fell the most since September. South Africa's rand was one of the few gainers, rising to a five-week high as pressure mounted on President Jacob Zuma to resign.

Developing-nation equities and currencies both dropped for a second day as local issues amplified concern that Trump as president would scrap trade deals and penalize U.S. companies that manufacture products overseas. All 11 industry groups declined as a Bloomberg tracking poll showed Clinton holding a slim advantage over Trump with independents a day after an ABC News/Washington Post tracking poll showed the Republican nominee one percentage point ahead of his Democrat rival.

“Everyone is focusing on the U.S. election because of yesterday's poll,” said Patrick Mange, an emerging-market strategist at BNP Paribas Asset Management in Paris, who recommends buying stocks in Russia and China. “Investors are getting more risk-off after the outperformance of emerging markets earlier this year. Trump would be more detrimental for emerging markets because of all of his talk of protectionism.”

Stocks

The MSCI Emerging Markets Index of shares dropped 1.1 percent to 893.10 as of 10:06 a.m. in London, the lowest since Oct. 17. The gauge has fallen about 3.7 percent from this year's high in September.

The Philippines benchmark index led losses on Wednesday, sliding 2.1 percent, while Poland's fell 1.3 percent.

South Korea's Kospi index of shares slid for a fourth day after President Park Geun-hye replaced her prime minister and finance chief in a bid to shore up support from her core backers.

Polish stocks fell the most since September after the Purchasing Managers Index missed estimates. The index released by Markit fell to lowest since September 2014 last month.

Egyptian stocks rose 1.3 percent, the most among more than 90 indexes tracked by Bloomberg, heading for a 16-month high as the government delayed the introduction of a capital gains tax on equities for three years.

Currencies, Bonds

The MSCI Emerging Markets Currency Index dropped 0.1 percent. The Mexican peso weakened for a second day, losing 0.1 percent. The currency slumped 1.8 percent on Tuesday, the biggest decline in almost four months, as concern over a Trump victory increased after an ABC News/Washington Post tracking poll published Tuesday showed the Republican nominee one percentage point ahead of his Democrat rival. Markets in Brazil and Mexico were closed for a public holiday.

The won dropped 0.8 percent after falling as much as 1.1 percent to the weakest since July 14. 

The Russian ruble weakened 0.3 percent and the yield on 10-year government notes rose to the highest since July on increased confidence as a policy maker said rates are now more in line with central bank policy.

The premium investors demand to own emerging-market debt over U.S.Treasuries widened three basis points to 347 basis points, increasing for a seventh day, according to JPMorgan Chase & Co. indexes

--With assistance from Ian Sayson Chan Tien Hin Lilian Karunungan and Nguyen Kieu Giang To contact the reporter on this story: Natasha Doff in London at ndoff@bloomberg.net. To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net, Matthew Kalman, Srinivasan Sivabalan