Emerging-Market Stocks, Currencies Drop; Hungary's BUX Slides

By Laura Cochrane

Oct. 27 (Bloomberg) -- Emerging-market stocks dropped to a four-year low as Ukraine and Hungary became the latest countries to receive help from the International Monetary Fund and concern deepened that the global economy will fall into a recession.

Ukraine's hryvnia slid to a record low against the dollar, while Hungary's BUX Index lost as much as 11 percent as the IMF said it will lend Ukraine $16.5 billion and give Hungary ``a substantial financing package.'' Equity indexes in the Philippines and Romania tumbled more than 6 percent, while Persian Gulf shares fell as customers rushed to withdraw money from Gulf Bank KSC, Kuwait's second-biggest bank.

Investors are selling emerging-market stocks, currencies and bonds as the rout that began with the collapse of U.S. subprime mortgages last year pushes the world toward a recession. The Bank of Korea slashed interest rates by a record today as the nation faces its biggest crisis since requiring an IMF bailout a decade ago.

``In more normal times a package from the IMF would be enough,'' said Beat Siegenthaler, chief strategist for emerging markets at TD Securities Ltd. in London. ``But now we have the worst-case scenario of people pulling out of emerging markets and selling any holding that is not U.S. dollars.''

The MSCI Emerging Markets Index dropped 3.7 percent to 456.65 at 1:53 p.m. in London, the lowest since September 2004. The gauge has lost 63 percent this year, the biggest retreat on record dating back to 1988.

The slump has left the index valued at 6.9 times the profits of its 788 companies, the cheapest since 1998.

IMF Bailouts

Hungary's BUX Index slumped for a seventh straight day, losing 6.6 percent after a four-day holiday weekend. The IMF's deal with Hungary was reached in cooperation with the European Union and the 24-month Ukrainian loan is conditional on parliamentary approval of legislation to support the country's banks, the lender said yesterday.

The Washington-based fund last week agreed to lend Iceland $2.1 billion and is also in talks with Pakistan and Belarus.

``As long as people were investing in emerging markets, the economies could sustain higher imbalances,'' Siegenthaler said. ``Now that no one is investing any more, the countries have to cut their imbalances dramatically and just like any bank, they are now in need of a lender of last resort.''

The Philippine central bank is considering more measures to boost liquidity after the nation's PSEi Index fell 12 percent, its biggest one-day drop since July 1987, and the peso slid to a 22-month low. Trading in stocks was suspended for 15 minutes at 11:23 a.m. in Manila after the index dropped 10 percent.

`High' Risks

``The risks associated with emerging markets are quite high,'' said Winson Fong, who helps oversee more than $3 billion at SG Asset Management Hong Kong Ltd. ``Because of perceived risks, emerging markets like the Philippines will be affected severely by the fallout from the global credit crunch.''

The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries fell 14 basis points to 8.51 percentage points, according to JPMorgan Chase & Co.'s EMBI+ Index.

Ukraine was the first nation in eastern Europe to receive IMF help in the crisis. Details of Hungary's agreement will be announced in coming days. Belarus last week asked the IMF for at least $2 billion after its banks lost access to financing.

Ukraine's hryvnia, which the central bank aims to keep within a trading band 8 percent either side of 4.95 per dollar, weakened as much as 4.9 percent to 6.1625 per dollar, a record low.

Romania's leu dropped 3.8 percent against the dollar, while the country's benchmark stock index slid 7.4 percent.

The Kuwait Stock Exchange Index lost 2.2 percent, bringing the decline this month to 23 percent. Customers rushed to withdraw money from Gulf Bank KSC after clients defaulted on currency contracts and the central bank was forced to guarantee deposits. Kuwait stock traders marched to the Emir's office to demand that the government intervene to halt the stock decline.

The Dubai Financial Market General Index tumbled 5.8 percent, the most since Oct. 16.

To contact the reporter on this story: Laura Cochrane in London at lcochrane3@bloomberg.net