Emerging-Market Stocks Drop to Four-Year Low on Growth Concerns

By Laura Cochrane and Fabio Alves

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.

Equity indexes in the Philippines and Romania tumbled more than 6 percent, while Brazil, Colombia and other Latin American stock markets declined as commodity prices headed for their worst month in at least 38 years. 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.''

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 cut 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 4.3 percent to 453.49 at 4:35 a.m. New York time, the lowest since September 2004. The gauge has lost 64 percent this year, the biggest retreat on record, dating back to 1988.

The slump has left the index valued at 6.8 times the profits of its 788 companies, the cheapest since 1998.

Hungary Stocks

Hungary's BUX Index slumped for a seventh straight day, losing 9.8 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 January 1998, and the peso slid to a 22-month low. Trading in stocks was suspended for 15 minutes in Manila after the index dropped 10 percent.

``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.''

Falling Yields

The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries fell 32 basis points to 8.33 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.

PetroChina Co., China's biggest oil producer, and Petroleo Brasileiro SA, Brazil's state-controlled oil company, led declines in the MSCI Emerging Markets index.

The drop in oil, silver and gold pushed the Standard & Poor's GSCI Index of commodities 0.2 percent lower, bringing its loss in October to 35 percent, the worst monthly performance since at least 1970. Crude oil for December delivery fell 3 percent to $62.25 a barrel in New York.

PetroChina plunged 15 percent to HK$4.25, the lowest since January 2005. Hong Kong's Hang Seng Index sank as much as 15 percent.

Petrobras sank 11 percent to 18.11 reais, pacing declines for Brazilian stocks. Cia. Vale do Rio Doce, the world's biggest iron-ore producer, slid 8.2 percent to 20.24 reais.

The Bovespa index fell to the lowest in three years, dropping 6.5 percent. Elsewhere in Latin America, Colombia's IGBC index sank 3.2 percent, while Argentina's Merval slid 5.7 percent.

To contact the reporters on this story: Laura Cochrane in London at lcochrane3@bloomberg.net; Fabio Alves in New York at falves3@bloomberg.net.