Emerging-Market Stocks Plunge, Set for Biggest Weekly Tumble Since 2008

 Published: 9/22/2011 11:39:02 PM GMT
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Emerging-market stocks dropped, with the benchmark index set for its biggest weekly loss since 2008, as concern deepened that the global economic slowdown will overwhelm government efforts to support growth.

The MSCI Emerging Markets Index fell 2.1 percent to 861.69 at 9:11 a.m. in New York, extending this week’s retreat to 12 percent. South Korea’s Kospi Index (KOSPI) tumbled 5.7 percent for the biggest drop among global equity gauges, while Russia’s Micex Index fell 4.4 percent. Asian currencies rallied, paring the Bloomberg-JPMorgan Asia Dollar Index’s biggest weekly drop since 1998, as central banks in the region intervened. Brazil’s real gained 1.2 percent and the Bovespa index added 0.5 percent.

The world is poised for a financial crisis, Mohamed El- Erian, chief executive officer of Pacific Investment Management Co., said yesterday. The MSCI emerging stock gauge has tumbled 29 percent from this year’s high on May 2 as European leaders failed to find a solution for the region’s sovereign debt crisis and the U.S. economic recovery stalled.

“We’re witnessing a selling spree amid growing risk aversion,” said Chung Yun Sik, chief investment officer for equities at ING Investment Management Korea Ltd., which oversees about $15 billion. “While we may see support moves in some countries, I think drastic measures should be implemented to address Europe’s troubles in order to stabilize sentiment.”

The MSCI index tumbled as much as 66 percent during the global financial crisis in 2008, with shares falling to 1.1 times net assets before they bottomed, according to data compiled by Bloomberg. The 21-country gauge is valued at 1.5 times net assets today, in line with the MSCI World Index of advanced-nation stocks, the data show. The emerging market index has dropped 25 percent this quarter, poised for the biggest retreat since the fourth quarter of 2008.

Group of 20 finance chiefs said after talks in Washington yesterday that they are “committed to a strong and coordinated international response to address the renewed challenges facing the global economy.” South Korea pledged to combat “herd behavior” in financial markets. China’s social security fund plans to invest more than 10 billion yuan ($1.6 billion) in the nation’s stock market, the Securities Times reported.

Indonesia’s Jakarta Composite Index advanced 1.7 percent, rebounding from an 8.9 percent plunge yesterday, as officials said they would take steps to support markets. The rupiah rose 0.9 percent against the dollar, while South Korea’s won reversed losses in the last two minutes of trading.

Officials from China and Japan, the world’s second- and third-biggest economies, indicated their support for Europe will have limits, saying the region needs to solve its own debt crisis. The European Central Bank may act to address risks to growth as soon as next month should economic data disappoint, Governing Council member Luc Coene said in an interview in Washington late yesterday when asked if an interest-rate cut was warranted.

Emerging-market equity funds reported $1.4 billion of withdrawals in the week ended Sept. 21, the eighth straight week of outflows, Citigroup Inc. said, citing EPFR Global data.

“It is a continuation of the outflows trend, with no new developments on European situations,” Kelly Kwok, a Citigroup analyst, wrote in an e-mail.

The Markit iTraxx SOVX CEEMEA Index of credit-default swaps for emerging Europe, the Middle East and Africa rose 53 basis points, or 0.53 percentage point, to a record 398, according to CMA in London.

Poland’s WIG20 Index of shares sank 2.6 percent, while the Czech PX Index lost 4.2 percent and the Ukrainian Equities Index declined 3.4 percent. Hungary’s BUX Index slipped 0.5 percent after retreating 6 percent yesterday.

The forint strengthened 0.5 percent against the euro, while Poland’s zloty gained 0.6 percent and the Czech koruna appreciated 0.3 percent.

South Korean exporters led losses in emerging-market stocks. Samsung Electronics Co., the biggest exporter of consumer electronics, dropped 4.1 percent, while Hyundai Heavy Industries Co., the world’s biggest shipbuilder, retreated 8.1 percent. Hyundai Motor Co. (005380), the nation’s largest automaker, sank 4.8 percent.

The Korean won strengthened 1.1 percent after trading 0.9 percent weaker two minutes before local markets closed. The currency tumbled 5.7 percent in the last four days and the finance ministry said today it would “take action” to stabilize the market to combat “excessive” recent moves.

Authorities probably intervened “much more strongly” than in previous days, said Kim Seong Soo, a Seoul-based trader with Kyongnam Bank.

Indonesia’s rupiah gained after the central bank said yesterday it was supporting the currency.

To contact the reporter on this story: Michael Patterson in London at [email protected]; Saeromi Shin in Seoul at [email protected]

To contact the editor responsible for this story: Darren Boey at [email protected]


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