Emerging-Market Stocks, Currencies Extend Rout on U.S. Concern

From Bloomberg this morning:

Emerging-Market Stocks, Currencies Extend Rout on U.S. Concern

By Darren Boey and Jake Lee

Aug. 16 (Bloomberg) -- Emerging-market shares and currencies dropped, with South Korea's Kospi index tumbling the most in five years, as concern a U.S. housing recession will derail global economic growth dents demand for riskier assets.

``It's a selling panic,'' said Mark Mobius, who oversees $30 billion at Templeton Asset Management Ltd. in Singapore. ``It's gotten out of hand with a lot of hedge funds and we're seeing a lot of negative news with very few positives.''

Morgan Stanley Capital International's Emerging Markets Index fell 3.6 percent to 977.12, the most since March 5, as of 2:20 p.m. in Hong Kong. The Kospi plunged 6.9 percent, the biggest loss since June 2002. Indonesia's market, which will be closed tomorrow for a holiday, is set for its largest weekly decline in almost nine years.

Samsung Electronics Co. and Hon Hai Precision Industry Co. led exporters lower today. South Korea's won slid the most in 10 months against the dollar, while the Indonesian rupiah was the weakest in more than a year.

More than $3.6 trillion has been wiped off global stock markets since July 23 amid a credit crunch, sparked by widening losses tied to U.S. home loans. Australia's Rams Home Loans Group Ltd. today said it was unable to refinance A$6.17 billion ($5 billion) of short-term U.S. loans because of a ``lack of market liquidity.''

A Merrill Lynch & Co. report saying Countrywide Financial Corp., the biggest mortgage lender in the U.S., may be forced into bankruptcy helped drag U.S. stocks lower yesterday. The S&P 500 Index erased its gains for the year, dropping 1.4 percent.

More To Come?

U.S.-based Sentinel Management Group Inc., which oversees $1.6 billion, two days ago suspended client withdrawals after saying credit-market turmoil made it impossible to trade. Hedge funds run by Bear Stearns Cos., Basis Capital Funds Management Ltd., Absolute Capital Management Holdings Ltd. and BNP Paribas SA also put froze redemptions in the past month.

``Nobody can say for certain that this is the lowest of the low because everyday there are companies coming out affected or having liquidity problems,'' said Olan Caperina, who helps manage $5 billion of global assets at BPI Asset Management Inc. in Manila.

Among Asian exporters, Samsung Electronics, the world's biggest maker of computer-memory chips, lost 4.6 percent to 584,000 won. Hon Hai, the largest contract electronics manufacturer, dropped 5.7 percent to NT$247 in Taipei.

``A lot of negative news is coming out of the U.S., and with emerging markets so dependent on exports, it's resulting in general negative feelings all over a lot of markets,'' Templeton's Mobius said. He's been taking advantage of the rout to add to his holdings of shares in South Korea and South Africa, though declined to name which stocks were bought.

Financial Turmoil

Home sales in the U.S. slumped to a four-year low and prices fell in a third of the nation's cities in the second quarter, according to an industry report released yesterday. A government report today is expected to show builders began work on the fewest homes in a decade in July, according to a Bloomberg survey of economists.

Financial turmoil will ``extract a penalty'' on U.S. growth rates, yet the economy is strong enough to weather problems without falling into recession, U.S. Treasury Secretary Henry Paulson told the Wall Street Journal.

Indonesia's Jakarta Composite Index plunged 6.3 percent, heading for a 14 percent weekly slide that would be the biggest since September 1998. The Philippine Stock Exchange Index slumped 6 percent today, the largest drop since Feb. 28, and Taiwan's Taiex index lost 4.6 percent, the most in three years.

PT International Nickel Indonesia, the country's biggest nickel miner by market value, plunged 13 percent to 41,500 rupiah. Philippine Long Distance Co., the nation's biggest company by market value, slid 7.9 percent to 2,270 pesos.

`Liquidation Mess'

The won fell 1.5 percent to 944.20 per dollar today, the lowest since March 16, according to Seoul Money Brokerage Services Ltd. That's the biggest decline since Oct. 9.

The Indonesian rupiah lost 0.6 percent to 9,483 against the dollar, its weakest since June 2006. Bank Indonesia said it's been buying the rupiah to stem the decline in the currency, which is down 5.1 percent this year.

``The housing problems are still lingering and that's a worry,'' said Thio Chin Loo, senior foreign-exchange strategist in Singapore at BNP Paribas SA. ``In Asia, there's a liquidation mess going on and we could see more declines'' in the won and other regional currencies.

Two-year Treasury yields held near the lowest in 22 months, a sign that the slide in stocks may have prompted investors to favor the relative safety of government debt.

Fund managers are the most risk averse in a year, with 38 percent saying their willingness to take on investment risk is ``lower than normal'' because of the subprime crisis, a Merrill Lynch & Co. survey showed.

``Blood is hitting the streets, everyone seems to be panicking, and there's reason to panic,'' said Patrick Chang, who helps manage $4.5 billion at CIMB-Principal Asset Management Bhd. in Kuala Lumpur. ``Liquidity is drying up.''