From Russia to Brazil, emerging look at life after May ’06

The WB report says the biggest emerging market inflows last year went to Europe and Central Asia, which recorded a 20% jump to $192 bn, led by a rush of money to Russia and Turkey. Inflows into Latin America and the Caribbean rose by 60% to $94 bn, while Asia received $138 bn, up 10%.

But then, the month of May has changed all that. The Morgan Stanley MSCI Emerging Markets Index, which tracks shares in 26 developing nations globally, has slumped 15% from a record close set on May 8.

RUSSIA

In May, the Russian market was hit by its worst one-day sell-off since October 27, 2003, after the arrest of Yukos founder Mikhail Khodorkovsky, and the RTS Index fell to its lowest close since February 3. Russia’s benchmark stock index RTS shed 9.05% on May 22, two days after the 826-point crash in the BSE Sensex. The fall came after the Russian stock and real estate market had recently gone through a period of remarkable growth. The RTS Index grew 20.2% since the beginning of the year on the top of over 80% growth in 2005. In Moscow, housing prices grew 39.8% since January 2, on the top of 27.8% growth in 2005.

BRAZIL

Brazil’s stocks and currency plunged in May, tracking weak global markets and pressured by lingering worries that higher US interest rates could drain capital away from emerging markets after several years of robust liquidity. The Bovespa index of the Sao Paulo Stock Exchange joined the sell-off in other markets and came down from recent peak levels. The Bovespa hit a record high in the beginning of May and the real rose to its strongest point in more than 5 years, but since then local markets have slipped on higher global investment risks. Brazilian markets were rising for much of the past two years on improving economic fundamentals and a high benchmark interest rate, currently at 15.75%, that lured in billions of dollars in foreign investment. Brazil’s real, last year’s best-performing currency, slumped 9% in the past three weeks against the dollar.

MEXICO

Mexican economy is bullish but its markets have turned bearish. Mexican GDP expanded 5.5% year-on-year in the first quarter of 2006. It reported a trade surplus in March and exports are rising. However, since Mexico’s markets began to slump on May 11, the IPC index has fallen around 12 per cent and its currency peso has given back more than 3%. Mexico investors are now nervous about the country’s July 2 presidential election, in which the two leading candidates are tied.

INDONESIA

Indonesia was the first among emerging markets to plunge in May. The Jakarta index (JKSE) fell 6.3%

on May 15, its biggest one-day fall since mid-May 2004, tailing recent drops on bourses worldwide, with some market watchers saying the slide in the rupiah also hurt sentiment.

Indonesian stocks had also been ripe for a fall, with the main index having gained nearly 23% since the start of the year, making it the fourth-best

performer in Asia. Analysts had been warning the market remained vulnerable to an abrupt exit of short-term speculative funds, or hot money, which has pushed stocks to record highs in recent weeks.

jayati.ghose@expressindia.com