Emerging-Market Stocks Plunge; Russia, Poland, Turkey Lead Drop

Emerging-market stocks dropped to a six-month low after a seventh Federal Reserve official in as many days hinted U.S. interest rates will rise, prompting investors to dump riskier assets. Shares in Russia and Poland led the slide.

The Morgan Stanley Capital International Emerging Markets Index, a measure of stocks in 25 developing countries, fell 4.1 percent to 666.65 as of 1:15 p.m. in London, poised for the lowest close since Nov. 29. The measure has plunged 24 percent since peaking on May 8.

The dollar-denominated Russian Trading System Index lost 7.1 percent, and Poland's WIG20 Index slumped 6.8 percent. Turkey's ISE National 100 Index tumbled 6.5 percent, while India's Sensitive Index was Asia's biggest loser, slumping 4.4 percent.

``Everyone is spooked by rate increases in the U.S.,'' said Nitin Jain, who helps manage about $563 million at Kotak Mahindra Asset Management Co. in Mumbai. ``We will see tightening credit on the back of such rate increases.''

Central banks around the world, including those in the euro region, India, South Africa and South Korea, have increased interest rates this month to quell inflation, feeding concerns that global economic growth will slow.

Fed officials in the past week have also signaled they may be forced to boost borrowing costs further, after 16 increases since June 2004. Fed Bank of Cleveland President Sandra Pianalto said yesterday inflation exceeds her ``comfort level,'' echoing remarks by Fed Chairman Ben S. Bernanke last week, who said recent increases in inflation measures ``are unwelcome.''

`Rookie' Fed

``Bernanke is eager in showing his ability, but his eagerness could cause him to overkill on rates,'' said Albert King, who oversees about $10 million as chief investment officer of Prophet Capital Inc. in Taipei. ``Stock markets worldwide will suffer because of this rookie.''

South Korea's Kospi Index slid 2.9 percent and Taiwan's Taiex fell 1.6 percent. The two markets have the biggest weightings in the MSCI Emerging Markets.

Russia's OAO Gazprom, the world's biggest natural-gas producer, and OAO Lukoil, the nation's No. 1 oil led today's slump in emerging markets. Gazprom dropped 8.7 percent to $8.67 and Lukoil fell slid 12 percent to $62.45.

KGHM Polska Miedz SA, a Polish company that mines more copper in Europe than any other company, lost 6.5 percent to 77.8 zloty. Copper led a retreat in metals prices, falling for a fourth amid speculation an economic slowdown will curb demand for commodities.

Risk Aversion

``People don't believe in the growth that we have seen in 2004 and 2005,'' said Mathieu Negre, who manages the equivalent of about $500 million in East European stocks at Fortis Investment in London. ``Global risk aversion is rising because of interest rates hikes.''

Samsung Electronics Co. paced declines in Asia. South Korea's largest exporter dropped 4 percent to 549,000 won, its lowest close since Oct. 28.

In Turkey, Turkiye Is Bankasi AS, the nation's largest publicly traded bank, fell 7.7 percent to 7.20 liras. The benchmark ISE index dropped for a seventh day, the longest losing streak in nine months.

The country's central bank last week raised rates for the first time in almost five years.

`Freefall'

``The Turkish market is in a freefall,'' said Stuart Hackett, a trader at Ekspres Invest in Istanbul. ``Inflation fears and the firming consensus on further rate hikes are worrying markets globally, and emerging markets always suffer the worst pain in this environment.''

In the Middle East, Jordan's main index fell, the biggest move among Arab equity markets. Arab Bank Plc, the largest lender in Jordan, fell 2 percent to 25 Jordanian dinars.

``The selloff is due to a panic about slowing global growth,'' said Raed El-Hajahjeh, deputy head of brokerage at Atlas Investment Group, an Amman-based firm that manages about $160 million. ``It's part of the worldwide drop in stocks.''

Most other Arab stock markets, like Egypt's, fell. The Dow Jones DIFC Arabia Titans Index, which tracks 50 stocks in 10 Arab countries, declined.

Cairo-based Orascom Telecom Holding SAE, the largest mobile phone operator in the Middle East by number of subscribers, fell 6.5 percent to 246 Egyptian pounds.

South Africa's main index declined 4.6 percent. Anglo American Plc, the world's second-largest mining company, retreated 4.5 percent to 229.5 rand in Johannesburg. AngloGold Ashanti Ltd., the world's third-largest gold producer, declined 9.4 percent to 250.99 rand.

The prospect of higher rates helped drag the gold price below $600 an ounce for the first time in almost two months.

Source: By George Hsu