Emerging market stocks, bonds plummet

Emerging-market stocks and bonds fell as a slump in commodity prices dragged energy companies lower and signs of a deepening recession in developing Europe deterred investors from higher-yielding assets.

Mol Nyrt., Hungary’s largest oil company, dropped to the lowest this month as ING Groep downgraded the stock and oil lost as much as 4.6 per cent. Africa Israel Investments sank 20 per cent to a five-month low as two brokerages advised selling holdings in the Israeli property company following a doubling in the share price. Gains in Asia limited the retreat in the MSCI Emerging Markets Index to 0.3 per cent in London.

The extra yield investors demand to own Hungary’s international bonds rose to a record high after new Prime Minister Gordon Bajnai said the economy will shrink as much as 6 per cent this year, almost double the previous government forecast of 3.5 per cent. Russia may cut planned expenditures by as much as 30 per cent next year as the world’s biggest energy exporter runs through its cash reserves, Deputy Finance Minister Tatyana Nesterenko said April 17.

“We are going to see a long period of negative economic figures in areas such as employment and retail sales and financial markets are going to go up and down without clear direction,” said Anders Svendsen, senior emerging-market analyst at Nordea in Copenhagen. “Risk appetite is not returning to the market as yet.”

The decline in emerging-market bonds prices sent the extra yield investors demand to own developing economy debt instead of US Treasuries one basis point higher to 5.47 percentage points in London, snapping a three-day rally, according to JPMorgan Chase & Co.’s EMBI+ Index.

Record spread
The spread on Hungary’s government and quasi-government international bonds widened five basis points to 6.02 percentage points, the highest since JPMorgan’s EMBI Global index for the country was introduced in January 1999.

The Dubai Financial Market General Index led declines in emerging-market equity benchmarks, dropping 4.5 per cent in the biggest slump in three months. The Micex Index in Russia slid 3.8 per cent to the lowest this month as crude oil fell to $48 a barrel in New York. Copper, nickel, lead, zinc and aluminum prices also sank, hurting the earnings prospects for emerging markets sustained by exports.

The Budapest Stock Exchange Index sank the most in three weeks as Mol dropped as much as 4.2 percent. ING cut its rating on Mol, citing a purchase of the company’s shares by Russia’s OAO Surgutneftgaz. Surgutneftegaz, the Russian crude producer, dropped 4.3 percent to a three-week low.

“The Russian company lacks transparency, and has not previously had a significant business relationship with Mol,” Budapest-based analyst Tamas Pletser wrote in a note today.

132 Percent Rally
Clal Finance Brokerage Ltd. and Leader Capital Markets Ltd. recommended selling Africa Israel after the stock surged 132 percent this month thru April 16. The company plummeted 91 percent last year as a decline in global property prices and a plunge in the company’s earnings led to speculation it may not be able to meet debt obligations.

Asian stocks gained after China’s Premier Wen Jiabao said that a stimulus plan was producing “better-than-expected” results. LG Chem Ltd., South Korea’s biggest chemical maker, advanced 25 percent after the shares resumed trading today following the spinoff of the company’s industrial-materials division. The Shanghai Composite Index climbed 2.1 percent.