[A-List] Slump in emerging stock markets worldwide

["Sabri Oncu" <soncu@xxxxxxxxxxx>]

Russia, Turkey Lead Emerging Markets Lower on Rate Concern
 
March 7 (Bloomberg) -- Russia and Turkey led a slump in emerging stock
markets worldwide on concern that rising U.S. interest rates will slow the
global economy. 

Morgan Stanley Capital International Emerging Markets Index had its steepest
loss since May 2004. The global index sank 23.59, or 3 percent, to 758.38 as
of 4:33 p.m. in New York. Energy producers, including Russia's OAO Lukoil,
and banks such as Turkiye Is Bankasi AS led the retreat. 

The decline, fueled by speculation that the U.S. Federal Reserve will
increase rates at least three more times in 2006, trimmed this year's gain
to 7.3 percent. Emerging markets are outperforming developed markets for the
sixth year in a row. 

``The risk reward is much less than it was a few years ago,'' Sanjeev Shah,
who manages the equivalent of $3.3 billion at Fidelity International Ltd.,
said in a press conference in Vienna. ``Valuations of the companies are
extremely stretched.'' 

Shah, who manages Fidelity's European Aggressive Fund, has reduced the
weighting of emerging market stocks to 5 percent of assets from 28 percent
in 2004. He favors pharmaceutical, real- estate and media companies in
Europe. 

Russia's RTS Index tumbled 5.7 percent to 1396.48, the day's biggest decline
among equity markets included in global benchmarks. In Turkey, the ISE
National 100 Index dropped 4.6 percent to 43,889.75, its biggest loss since
November 2003. 

Latin American markets also retreated, sending a regional MSCI index to its
biggest loss since May 2004. The dollar- denominated gauge sank 3.9 percent
to 2426.87. 

U.S. Interest Rates 

Higher rates in the U.S. make riskier assets, including stocks in emerging
markets, less attractive. U.S. reports today showed productivity fell last
quarter and labor costs rose more than economists expected, reinforcing
concern that the Fed will increase rates to curb inflation. 

The central bank raised its benchmark rate a quarter point to 4.5 percent,
the 14th straight increase since June 2004, on Jan. 31. The MSCI Emerging
Markets index has lost 3.4 percent since Feb. 1, when Ben S. Bernanke took
over as Fed chairman. Policy makers next meet on March 28. 

Interest-rate futures indicate traders expect at least three more increases
this year, as implied yields on futures maturing in August through November
exceed 5 percent. The yield on U.S. 10-year Treasury notes reached 4.80
percent, the highest level since June 2004, before retreating. 

Central banks elsewhere have also lifted borrowing costs. The European
Central Bank last week raised its benchmark rate by a quarter point, to 2.5
percent, and indicated further increases are possible. The Bank of Canada
today raised its main rate to 3.75 percent, the highest since September
2001. 

`Monetary Tightening' 

The Bank of Japan, at a two-day meeting starting tomorrow, may make less
cash available to the banking system, a precursor to raising rates,
according to economists surveyed by Bloomberg. Since March 2001, the central
bank has kept rates near zero. 

``We seem to be edging closer to the situation of simultaneous monetary
tightening in the U.S., Europe and Asia,'' said Mario Mesquita, chief
emerging markets economist at ABN Amro Bank NV in Sao Paulo. ``This would
remove part of the attractiveness'' of emerging-market investments, he said.


Bonds in emerging markets declined as investors shunned riskier assets. The
yield on Brazil's dollar bond due in 2027, one of the government's more
actively traded securities, climbed 15 basis points, or 0.15 percentage
point, to 7.31 percent. 

More Pessimistic 

The MSCI Emerging Markets more than doubled in the previous three years,
beating a 59 percent gain in the MSCI World Index of stocks in developed
markets. A six-year win streak against the MSCI World will match the longest
ever, from 1988 to 1993. 

Rising oil prices have boosted energy stocks in Russia. Eastern European
equities have surged as economies in new and prospective European Union
members grow faster than those in Western Europe. 

``The long-term case for emerging market continues intact,'' said Francisco
Alzuru, who manages the $330 million Harris Insight Emerging Markets Fund in
Fort Lauderdale, Florida. ``Companies have increased and reported better
earnings and the health of these economies is significantly better than they
used to be.'' 

Russia's RTS is 24 percent higher this year even after today's slide. The
dollar-denominated benchmark is the sixth- best performance of global
indexes tracked by Bloomberg. The ISE National 100 has risen 10 percent on
speculation that membership talks with the European Union, which began on
Oct. 3, will boost profits at Turkish companies. 

Lukoil Valuation 

Lukoil, Russia's largest oil producer, dropped 6.1 percent to $76.50. The
stock is valued at 10.5 times earnings, above an average price-to-earnings
ratio of 6.9 for the last four years. 

Turkiye Is Bankasi, the nation's biggest listed bank, lost 5 percent to 11.5
liras. The shares trade at 28.9 times profit, above an average ratio of 15.9
for the past five years. Turkiye Garanti Bankasi AS, Turkey's No. 4 bank,
slid 3.5 percent to 5.55 liras. 

In Latin America, local stock indexes in Brazil, Mexico, Argentina, Chile,
Colombia and Venezuela all dropped. Petroleo Brasileiro SA, Brazil's
state-controlled oil company, declined 1.81 reais, or 4.3 percent, to 42.35
reais. 

Fund managers are becoming more pessimistic on emerging- market equities,
according to Merrill Lynch & Co.'s latest survey. Seventeen percent of
respondents in February said they sold shares in developing nations, the
highest percentage since October, when the MSCI Emerging Markets dropped 6.6
percent. 

``Investors may be concerned there may be an outflow of funds because of
possible interest rates increases in the U.S.,'' said Alexander Schwarzkopf,
who helps manage $1.7 billion, including Russian stocks, at Altima Partners
in London. ``Investors sell riskier assets as less money becomes available
for investment.''