Emerging markets rocked; volatility soars to record; Turkey leads losers as bonds give up 10 points

By Aaron Hochman-Zimmerman

New York, Oct. 9 - Emerging markets hemorrhaged again on Thursday as the Dow Jones Industrial Average and a host of other market indicators fell and flattened the emerging sectors.

A reasonable morning, for traders in New York, gave way to a horrible afternoon as volatility rocketed up to set a new record.

"When is this going to end?" asked a syndicate official.

In trading, Turkey led the retreat as it saw a massive drop of 10 points from its bonds due 2030.

Meanwhile, in the primary market, a syndicate official expressed doubts over the success of the $150 million 10-year local deal from Argentina's utility YPF SA.

In the major markets, volatility smashed through 60.00 by adding 6.39 to end at 63.92, according to the VIX index. The index is a common measure of market volatility.

Turkey, emerging Europe slammed

Emerging Europe held firmer in early trading as investors were mildly encouraged by plans in the United Kingdom and United States to undertake a nationalization of some of the floundering financial institutions.

Investor support did not last as Turkey led the way down for bond traders by shedding 10 points from its bonds due 2030 to 129.3 bid.

New elections

In Ukraine, president Viktor Yushchenko dissolved parliament and set new elections for Dec. 7.

The coalition cracked on Sept. 2 after prime minister Yulia Timoshenko's bloc sided with the pro-Russia Party of Regions over laws that would limit presidential power. After weeks of negotiations the coalition could not be repaired.

"The democratic coalition, I am assured, deeply assured, was destroyed by one thing - by human ambition," Yushchenko said in an address to the nation, according to his web site.

Many believe his comment about "ambition" was directed at Timoshenko.

Yushchenko and Timoshenko were former allies in the 2004 orange revolution, which put Yushchenko in power, but the two are now divided largely over the country's relationship with Russia.

"[The] Block of Yulia Timoshenko itself has become hostage to its leaders. Because they are ready to sacrifice everything: language, security, our European perspective," Yushchenko said.

Georgia leaving CIS

Also in the Commonwealth of Independent States, Georgia will cease to be a member of the CIS after August 2009, the Itar-Tass News Agency reported.

Russian foreign minister Sergei Lavrov said there will be "no negative consequences from discontinuation of Georgia's membership of the CIS, since Georgia's participation over the past years was aimed likely at erosion of the CIS rather than at its consolidation," Itar-Tass reported.

However, "a decision was taken on stopping the operation of the Collective Peacekeeping Force in Abkhazia, since it was made within the CIS," Lavrov said.

When asked, Lavrov added that he has received no indication from Ukraine that it intends to leave the commonwealth.

Meanwhile, Russian president Dmitry Medvedev continued talks with French president Nicolas Sarkozy over how to deal with the global economic crisis.

The Russian sovereigns due 2030 fell 1.125 points to 97.125 bid.

LatAm tumbles in late trading

The tone in Latin America was dreary as investors had trouble taking their eyes from falling indices and spreads in the major markets.

Early trading was tempered, much like Wednesday, but later in the day, the bottom fell out from under the Dow Jones Industrial Average and the rest of the market went with it.

In Argentina, the government agreed to meet farm leaders to discuss agricultural policies, the Buenos Aires Herald reported.

The government was pressed for new talks in the wake of a six-day protest by farmers, which ended Wednesday with a demonstration in front of the Congress building.

The Argentine discount bonds due 2033 were spotted at 49.25 bid.

In corporates, Wednesday's whispers of a $150 million 10-year deal from YPF SA were met with skepticism as world markets were slashed again.

"I don't know if that's going to happen," a syndicate official said. "Who wants to let go of their cash?"

In Mexico, president Felipe Calderon announced that $4.3 billion of emergency funds will be funneled into the Mexican economy.

The bulk of the money will be spent on infrastructure projects, the construction of a new oil refinery and relief for small businesses.

Mexico's economy is tightly linked to the United States and has seen smaller revenues from exports as well as remittances from foreign workers.

"That's not an injection, that's just projects they're proposing," a syndicate desk official said about Calderon's announcement.

"Mexico is getting clobbered," he said.

The Mexican government bonds due 2017 were down 1.5 points to 90.5 bid.

The peso was as low as 14.31 to the dollar on Wednesday but was seen on Thursday trading at 13.246 to the dollar.

Also in Latin America, protestors hit the streets of Peru over low wages and economic strife.

The planned demonstrations had added purpose after as a corruption and bribery scandal has weakened president Alan Garcia.

Energy and mines minister Juan Valdivia resigned on Tuesday amid allegations that he accepted bribes in exchange for oil production rights.

Elsewhere in Latin America, Colombia's bonds due 2017 were down 0.5 point to 92.5 bid.

Venezuela's 9¼% government bonds due 2027 traded at 58.625 bid, and Brazil's highly traded 11% bonds due 2040 were spotted at 113 bid, 115.25 offered.

Asia sinks lower

The once outperforming Asian credits were damaged by falling markets everywhere.

In the Philippines, global economic worries are likely to hamper privatization in the country's energy sector, the Manila Times reported.

Currently, sales of government assets to private investors are suffering a "little bit of a hiccup," said Federico Lopez, president of First Gen Corp.

"No doubt a lot of this global turmoil is sort of putting a chink on everybody's plans," he said in the report.

Lower power rates have also scared off investment dollars in a sector in need of liquidity, he added.

In Indonesia, the government intends to expedite cash disbursements to businesses in order to maintain economic growth, according to the Jakarta Post.

Government hand-outs are expected to reach 100 trillion rupiah, spread over the next three months, said National Development Planning Board chairman Paskah Suzetta.

In Pakistan, the parliament was given a rare closed-door intelligence briefing by the military on Wednesday followed by a question-and-answer session on Thursday.

The briefing was aimed at helping legislators understand the fight against militancy.

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