Russia, Indonesia Shut Exchanges as Rout Worsens; Brazil Drops

By Denis Maternovsky and James Attwood

Oct. 8 (Bloomberg) -- Russia, Indonesia, Ukraine and Romania shut their stock exchanges and Brazilian stocks fell for a fifth day as emerging markets had their worst week in at least two decades on concern the credit crisis will halt global growth.

Russia's Micex Index dropped 14 percent, having already slumped 20 percent this week, before trading stopped at 11:05 a.m. in Moscow. The Jakarta Composite index fell 21 percent in its biggest weekly slump in at least 25 years, according to data compiled by Bloomberg. Brazil's Bovespa index tumbled for a fifth day as the plunging real currency threatened earnings.

``The markets have priced in the credit crunch and now the next thing you've got to price in is the fact that we're going to have a pretty nasty recession everywhere,'' said Alex Ingham, who helps manage the equivalent of $8 billion in emerging market stocks at Morley Fund Management in London.

The benchmark emerging markets index extended a decline in the last three days to 18 percent, the steepest weekly decline since it was established in 1987, on speculation interest-rate cuts by six central banks won't prevent a slowdown in demand for the commodities that drive developing nation economies. Copper dropped to the lowest since March 2006 in New York.

The Federal Reserve, European Central Bank, Bank of England, Bank of Canada and Sweden's Riksbank each cut their benchmark rates by half a percentage point to shore up confidence and global growth.

Policy makers are reducing rates as economies weaken around the world. The International Monetary Fund said the global economy is heading for a recession in 2009 and increased its estimate of losses from the financial crisis to $1.4 trillion.

`Survival Mode'

``The market is in survival mode,'' said Ralph Sueppel, chief economist at BlueCrest Capital Management Ltd. in London, which manages $2 billion in emerging-market assets. ``Concerns over liquidity, counterparty risk, and mark-to-market risk limits prevent institutional investors from doing what they are supposed to do: correcting misaligned asset prices by seeking a profit.''

The MSCI Emerging Markets Index fell for a sixth day, dropping 8.1 percent to 605.84 at 4:51 p.m. New York time, the lowest since October 2005.

Brazil's Bovespa fell 3.9 percent, taking the loss in the last five days to 23 percent. The Brazilian real tumbled as much as 10 percent today, the most since the 1999 devaluation, while Mexico's peso plunged the most since the government abandoned a currency peg in December 1994.

`Exposing Countries'

Votorantim Celulose & Papel SA and Aracruz Celulose SA led declines in Brazilian pulp exporters on speculation third-quarter profit will be hurt by currency losses. Cia. Energetica de Sao Paulo fell 17 percent, the most on the Bovespa, after Banco Santander SA said real depreciation will have ``significant impact'' on utilities with dollar debt. VCP fell 14 percent to 19.10 reais, while Aracruz sank 7 percent to 3.30 reais.

In Mexico, Controladora Comercial Mexicana SAB fell 44 percent, the biggest drop since trading began in 1996. The owner of supermarkets and Costco stores in Mexico said yesterday it is negotiating with lenders after its foreign-currency debt increased ``significantly.'' The announcement may indicate the company has losses related to currency derivatives, Banco Santander said.

``This dollar strength, the flight to quality in currencies, is really exposing countries and companies that all of a sudden are having to confess to having U.S. dollar debt that wasn't such a prominent feature of their balance sheet,'' Ingham said.

Medvedev Plan

Ukraine's exchange was closed for the day before trading began, and Romania suspended its main bourse after a 9.5 percent slide. Egypt's benchmark CASE 30 Index plunged 14 percent at 11:56 a.m. in Cairo, according to the bourse's Web site, after losing the same amount yesterday.

Russia's Micex Index has lost 66 percent of its value this year, compared with a 62 percent drop for China's CSI 300 Index and a 44 percent decline on India's Sensex. The Russian exchange won't reopen until Oct. 10 unless the Federal Financial Markets Service says otherwise, Micex spokesman Alexei Gerasyuk said.

Regulators have halted stock trading 10 times since Sept. 16 as President Dmitry Medvedev's package of $186 billion in support for banks and companies failed to instill investor confidence that the government can arrest its worst financial crisis since its 1998 default and ruble devaluation.

Indonesia's suspension, the first in eight years, followed a 10 percent slide in the Jakarta Composite Index, the biggest decline since the 1998 Asian financial crisis.

India's Sensex index slid 3.1 percent, China's CSI 300 Index fell 3.8 percent. South Korea's Kospi Index lost 5.8 percent to the lowest since July 2006.

Default Swaps

The cost of protecting Russian and Indonesian government debt against default jumped to the highest in at least four years. Russia credit-default swaps rose 52 basis points to 352, up from as little as 36 basis points in May 2007, and contracts on Ukraine climbed 42 at 953. Contracts on Indonesia increased 64 basis points 579, and South Korean credit-default swaps advanced 45 to 312, according to CMA prices.

The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries has doubled since June and rose 14 basis points to 5.11 percentage points today, according to JPMorgan Chase & Co.'s EMBI+ index. That's the highest spread since June 2004.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's or a country's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. An increase indicates a deterioration in the perception of credit quality.

A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.netJames Attwood in Santiago at jattwood3@bloomberg.net