Emerging markets open to strong tone; Russia cuts gas to Ukraine; India brings stimulus package

By Aaron Hochman-Zimmerman

New York, Jan. 2 - Emerging markets went walking tall into the New Year as negligible volumes were overshadowed by strong sentiment.

Market watchers even had the pleasure of seeing the Dow Jones Industrial Average close on the shiny side of 9,000 on the first day of the 2009.

Still, bad news loomed from overseas.

Russia, Ukraine and the European Union began to take positions ahead of what could be another winter's battle over gas prices and gas debts.

Fellow fuel producer Venezuela showed its concern over the outflow of dollars as it cut its tourists' foreign spending allowances; meanwhile, India provided better news with a stimulus package in order to reinvigorate its economy.

In the United States, volatility fell below 40.00 as it dropped 0.81 to end the day at 39.19, according to the VIX index. The index is a common measure of market volatility.

Emerging Europe still on holiday

Emerging European investors were slow to return to markets in 2009.

"Maybe in the next couple weeks things will pick up again," a London-based trader said.

Even news of an intensified energy conflict between Russia and Ukraine did "nothing" to pique investors' interests, the trader said.

Likewise, with Slovakia's adoption of the euro: "nothing," he said.

Still, the newswires hummed with talk of the Russian supply cuts to gas shipments made to Ukraine and hiked prices on Thursday.

"In view of Ukraine's refusal of the offer on the favorable terms of gas supply in 2009 priced at $250, starting from January Gazprom will supply gas to Ukraine at the European market price - $418 per 1,000 cubic meters," OAO Gazprom chairman Alexey Miller said, according to the company's web site.

Gazprom does expect to receive a payment of $1.5 billion from Kiev on Jan. 11 for gas shipped in 2008, but negotiations for a 2009 contract were suspended as of Friday afternoon.

By late Friday in New York, Hungary and Poland began to report reduced pressure on their pipelines.

During a 2006 supply stoppage, Western Europe was significantly affected by Ukrainian siphoning. The latest conflict has compelled Kiev to appeal to the European Union in Brussels for diplomatic support.

Meanwhile, Russia began an informal search to replace Ukraine as a gas conduit to the West.

Elsewhere in emerging Europe, Turkey has also not seen any loss of gas supplies due to the controversy over payment, reports said.

Turkey is the second largest user of Russian gas behind Germany, the report said.

Also at the stroke 2009, Slovakians were able to toast the New Year and pay with euros rather than korunas as Slovakia became the 16th country to use the common E.U. currency.

Reports noted that many Slovaks were slow to swap for the euro, but polls show a majority favor the switch as a barrier against currency fluctuations.

The euro was seen trading at 1.392 to the dollar, while the koruna still traded at 21.64 to the dollar.

Asia stable on stimulus package

Asian trading was quiet, but investors were encouraged by a strong show for equities and a proactive approach from India.

Delhi announced a new stimulus package accompanied a 100 bps reduction of the key lending rate to 5.5%.

As part of the measures, restrictions on foreign investment were lifted as well as reserve requirements eased for local lenders.

The rupee was seen trading at 48.12 to the dollar.

In the Philippines, the Treasury Department registered less debt repayment in November on a year-over-year basis.

Payments were made on PHP 22 billion in 2008, compared to PHP 28 billion during the same period of 2007.

Still, for the year as a whole, debt servicing increased through the first 11 months of 2008.

The government repaid PHP 593 billion in debt through November, compared to PHP 591 billion for the same period in 2007, according to the Manila Times.

For payments in 2009, the government has budgeted PHP 701 billion, slightly higher than the PHP 682 originally expected, finance secretary Margarito Teves said, according to the report.

In Indonesia, foreigners remained the dominant force in the credit and stock markets, according to the Jakarta Post.

In 2008, 96% of holders of corporate debt were foreigners, virtually the same as the 95% in 2007.

LatAm opens '09 higher

Latin American credit traded better on Friday as the year opened with healthy leadership from U.S. equities.

In Venezuela, the government moved to keep dollars from slipping across the borders by cutting the amount tourists can charge to their credit cards while traveling abroad to $2,500.

The former limit was a $5,000 charge.

Cash spending allowances were also slightly cut.

Many believe that similar economic measures will continue in 2009, especially as oil remains at steep discounts to 2008's highs.

However, light sweet crude was seen trading over $46 per barrel.

Also in Argentina, the future of the legislature's coalition was in doubt as Radical Party chair, Gerardo Morales, was reluctant to extend a welcome to the right-center PRO Party chairman Mauricio Macri.

The left's coalition will face the Victory Front in this year's elections.

Former president Carlos Menem also announced plans to run make another run for the presidency in 2011, the Buenos Aires Herald reported.

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