Bloomberg News

Emerging Market Stocks Fall in Biggest Weekly Tumble Since 2008

September 23, 2011

Sept. 23 (Bloomberg) -- Emerging-market stocks dropped, with the benchmark index posting 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 2.2 percent to 861.53 at 5:11 p.m. in New York, extending this week’s retreat to 12 percent. Indexes in Chile, Colombia and Peru declined. South Korea’s Kospi Index tumbled 5.7 percent for the biggest drop among global equity gauges, while Russia’s Micex Index fell 4.5 percent.

Goldman Sachs Asset Management Chairman Jim O’Neill said today that the global financial system risks repeating the crisis of 2008 if Europe’s debt situation worsens and spreads to the U.S. banking industry. 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 woes 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.”

Most emerging-market currencies rallied, with both the Mexican peso and the Brazilian real advancing 3.9 percent.

Crisis Valuations

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.”

G20 nations are making progress on finding a greater role for China’s currency in the global monetary system, French Finance Minister Francois Baroin said.

“We’re advancing in the discussions” about the yuan and its inclusion in the International Monetary Fund’s special drawing rights, Baroin said at a press conference in Washington after meeting with his G-20 counterparts.

Brazil, Indonesia

Brazil’s Bovespa stock index posted its biggest weekly drop since early August as recession concerns drove down prices of Brazil’s commodity exports.

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 to rise 1.1 percent.

China said today that the International Monetary Fund “should further study the inherent defects of the international monetary system.”

Finance Minister Xie Xuren, in a statement released at the IMF meeting in Washington, said the IMF should also “promote diversification of the international reserve currency system and build the international reserve currency system into one with stable value, rule-based issuance and manageable supply.”

Fund Outflows

Indian Finance Minister Pranab Mukherjee, in a statement also released at the IMF meeting, said the outlook for a self- sustaining global recovery has been “undermined,” and policy makers in crisis-hit nations must speed up financial reform.

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 1 percent, while the Czech PX Index lost 3.5 percent and Hungary’s BUX Index slipped 1.4 percent after retreating 6 percent yesterday.

The forint strengthened 0.8 percent against the euro, while Poland’s zloty gained 3.1 percent and the Czech koruna appreciated 0.7 percent.

--With assistance from Drew Benson in New York. Yumi Teso in Bangkok. Editors: Marie-France Han, Brendan Walsh

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net; Saeromi Shin in Seoul at sshin15@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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