Emerging markets slammed by Argentina’s new woes
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Emerging-market stocks, already devastated this year, are taking another hit as Argentina stumbles toward its second debt default in this decade.
Argentina’s Merval stock index has crashed 17.4% in midday trading today, bringing its loss for the week so far to nearly 29%, after the government on Tuesday said it would nationalize 10 private pension funds holding $29 billion in assets.
President Cristina Fernandez de Kirchner said the move was aimed at protecting retirees from the global financial crisis. But investors suspect another motive: the government’s need for financing as revenue from the country’s commodity exports plunges with the dive in raw materials prices.
Argentina hasn’t been able to borrow in international debt markets since it defaulted on its bonds in 2001, so its financing options are limited.
As Bloomberg News notes:
The last time Argentina sought to tap workers’ savings was in 2001, just before it halted payments on $95 billion of bonds. ‘Tapping into the pension funds makes it blatantly obvious that it needs funds,’ said Aryam Vazquez, an emerging markets economist with Wells Fargo & Co. in New York. ‘This is bad news any way you look at it.’ Fernandez made a bid to regain access to international markets last month, instructing her economic aides to pursue a renegotiation with creditors who rejected the country’s 2005 payout of 30 cents for every dollar of defaulted debt. Holders of about $20 billion of bonds turned down that 30-cent offer, and many have filed lawsuits against Argentina.
The country’s woes are helping to drag down other Latin American stock markets today, which are under pressure from the U.S. market sell-off as well. Brazil’s Bovespa index has slumped 9.4% to a new two-year low of 35,354. The Mexican market is down 6% to 18,997, also a new two-year low.
The iShares MSCI Emerging Markets index exchange-traded stock fund was off 8% to $22.11 a share at about 11:50 a.m. PDT, its lowest since 2005. The fund has plummeted 56% this year.
Although most emerging market countries have been economic success stories in this decade, their stock markets have cratered since spring as investors worldwide have pulled back from risk-taking, and as the dive in commodity prices has threatened their economies.
Argentina just serves to reinforce concerns about the risk in those markets, even if it is, once again, the outlier.