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October 8, 2008

Stock Trading Ban in Emerging Markets Exchanges

Regulators halt stock trading in emerging-market exchanges. Is this for real? Further turmoil, instability and more less of everything (cash, investments, credit) is the emerging markets world’s response to greedy Wall Street today. The last week has been the worst for the emerging markets in almost a quarter of a century, and for some stock exchanges it might literally have been the last, as regulators halted stock trading in the face of plunges of more than 10 percent.

A friend was asking me the other day, how they decided to ban short selling (naked) on certain financial stocks to protect them and whether this could be extended to a whole market if in danger.

I found the question interesting to say the least, but now that the prophecy has been fulfilled, I am petrified. Of course I tried to answer the question as best I could, but not even in my wildest dreams would I have thought that this is an actual possibility that we are talking about.
Of course, this has happened before in the past – all trading activity stops when a certain stock exchange is under considerable economic and political (most often!) stress to protect investors and companies alike from a sheer downfall, but not this….

Four emerging markets have closed today their stock exchanges: Russia, Indonesia, Ukraine and Romania. The stocks of the aforementioned stock exchanges have suffered substantial losses over the past few days, marking their worst performing week in about twenty five year time. Egypt (CASE 30 Index) is very likely to follow their example, as the index plummeted by 14% on two consequent days.

Statistics

Russia’s Micex Index has lost almost 67 percent of its value from the beginning of the year, whereas its dollar-denominated RTS bourse is said it will stay shut indefinitely.

Ukraine’s PFTS Index has lost 72 percent of its value year to date.

Romania’s Bucharest Bet Index has lost 63 percent of its value this year.

Indonesia’s LQ45 Index, a capitalisation-weighted index of the 45 most heavily traded stocks on the Jakarta Stock exchange has lost over 52 percent of its value this year. Stock trading at the Indonesian Composite Index was halted at about eleven o’ clock this morning, when it had already plunged by more than 10 percent.

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