Emerging-market stocks headed for their worst week in 14 months and currencies slumped on concern Europe’s debt crisis will slow the global economic recovery and push up borrowing costs for governments worldwide.
The MSCI Emerging Markets Index dropped 1.8 percent to 935.17 by 10:40 a.m. in Hong Kong, extending this week’s retreat to 8.3 percent, the biggest decline since Feb. 20, 2009. The index has swung to a 6 percent loss for the year from a 5 percent gain over nine days. The Korean won declined 1.3 percent to 1,156.85 per dollar.
Investors started to withdraw money from Asian emerging- market equity funds in the past week, while withdrawals from Latin America equity funds reached the highest level in 45 weeks, EPFR Global said in a report late yesterday. U.S. stocks tumbled the most in a year, briefly erasing more than $1 trillion in market value, as waves of computerized trading exacerbated a selloff triggered by the European debt crisis.
“There is a contagion of fear,” said Raymond Tang, who oversees $6.4 billion as chief investment officer at CIMB- Principal Asset Management Bhd. in Kuala Lumpur. “These things get a life of their own.”
Emerging-market bonds lost 1.4 percent yesterday, according to JPMorgan Chase & Co.’s EMBI+ Index. The extra yield investors demand to own the securities over Treasuries surged 28 basis points to 3.23 percentage points, the most since Feb. 17, 2009, the EMBI+ gauge showed. South Korea’s three-year local-currency government bonds fell. The yield on the 4.25 percent note due in December 2012 climbed six basis points to 3.795 percent.
Europe’s government bonds slid and Spain’s borrowing costs surged to a 23-month high yesterday as central bank policy makers debated more steps to restore investor confidence in the euro. A 110 billion-euro ($140 billion) aid package to avoid a default by Greece has failed to prevent bond yields from rising, driving up borrowing costs for countries including Spain and Portugal.
Korea’s Kospi index slumped 3.3 percent to 1,628.28. LG Display Co., which had 17.7 percent of sales from Europe last year, declined 4.2 percent.
China’s Shanghai Composite Index dropped 2.2 percent to 2,678.42, the lowest since Aug. 31. Air China Ltd., the nation’s largest international carrier, led declines among airlines on the prospect a global slowdown will cut demand for flights.
Taiwan’s stock index fell 1.8 percent to 7,443.85, the lowest since Feb. 26. AU Optronics Corp., Taiwan’s second- largest flat panel maker, slid 2.5 percent. Asustek Computer Inc. lost 4.4 percent to NT$51.80.
Malaysia’s ringgit was set for a fifth day of losses, declining 0.8 percent to 3.2855 per dollar. The ringgit touched 3.739 on March 6, 2009 and the won reached 1,597.45 that day, their weakest levels since at least February 2006, as credit markets froze following the bankruptcy of Lehman Brothers Holdings Inc. on Sept. 15, 2008.
“This is, in effect, already a contagion as there is nothing fundamentally wrong with Asia,” said Nizam Idris, a currency strategist at UBS AG in Singapore, the world’s second- largest foreign exchange trader. “It is too early to say the worst is over for the markets. Looking back at the Lehman contagion, stocks continued to decline for quite a while after.” Investors pulled “modest” amounts of money from equity funds investing in Asia excluding Japan, China and India in the week ended May 5, while funds focused on Taiwan recorded the biggest outflows since the third quarter of 2009, according to EPFR Global.
Even so, emerging-market bond funds took in more than $1 billion for a fourth straight week, with those investing in local-currency debt attracting the biggest share, according to EPFR, which tracks firms overseeing some $13 trillion of assets. Global Emerging-Market stock funds also had net inflows.
“It’s a dreadful, messy day,” said Sean Callow, senior currency strategist at Westpac Banking Corp. in Sydney. “I don’t think many will step in today to try to bottom-fish to look for bargains. It’s too early for bargain-hunting.”
Yesterday, Kazakhstan’s KASE Index fell 4.4 percent bringing its loss in six days to 9.5 percent and from a Jan. 15 peak to 15 percent. Argentina’s main equity index, the Merval, fell 5.4 percent, the biggest drop worldwide. Brazil’s Bovespa stock index plunged to a three-month low.