Jan 24 - Global stock markets hit the skids for the second day in a row as a crisis of confidence in Argentina spread to other emerging market currencies, adding a new threat to the global economy. Conway G. Gittens reports.
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From Argentina...to Thailand...to the Ukraine and beyond - emerging markets sent a bone-chilling message to global investors on Friday: there's trouble in the global economy.
That led investors to lock in the big stock market gains made last year.
Tom Lee of JP Morgan:
SOUNDBITE: TOM LEE, CHIEF U.S. EQUITY STRATEGIST, JP MORGAN (ENGLISH) SAYING:
"Investors were overly long, or uncomfortably long at the start of the year. We've seen some position trimming and I think things like emerging markets weakness has really scared investors."
It was the Dow's biggest plunge since the summer and the S&P 500's worst week in 2-1/2 years.
Stocks in Europe had their deepest one-day plunge in seven months.
And the scene wasn't much better in Asia where nervous investors are watching things unravel in Thailand and China's manufacturing power loses muscle.
At the World Economic Forum, British Prime Minister David Cameron says that higher wages and other factors are reversing the economic activity once sent to China.
SOUNDBITE: BRITISH PRIME MINISTER DAVID CAMERON (ENGLISH) SAYING
"Companies are choosing to locate production nearer to the consumer markets in the West by shortening their supply chains they can develop new products and react more quickly to changing consumer demand."
But that shift in China - from the world's manufacturing base to a domestic led economy - is hurting other emerging markets that often supply raw materials like Argentina.
Latin America's third largest economy was forced to relax currency controls one day after the peso had its biggest free fall in 12 years. High inflation and a lack of confidence is taking a toll.
Brazil's president quickly tried to contain the contagion...
As did Mexican Finance Secretary Luis Videgaray.
SOUNDBITE: LUIS VIDEGARAY, MEXICAN FINANCE SECRETARY (ENGLISH) SAYING:
"I think what is happening is that the market is starting to adjust portfolios out of emerging markets. Each country is different in the way they can respond and the fundamentals of each country is different. I think that those countries that have a more robust economic environment that don't have any significant imbalance are better prepared."
But investors were not differentiating one emerging market currency from another and there's likely more selling to come with some currencies dropping 10 to 20 percent, says Win Thin of Brown Brothers Harriman.
WIN THIN, GLOBAL HEAD OF EMERGING MARKETS, BROWN BROTHERS HARRIMAN (ENGLISH) SAYING:
"Markets are repricing emerging markets, re-pricing risk, so to me I think there is much further to go in terms of EM weakness and as you know the FX market has a tendency to overshoot, so you have to add that in as welI."
And with investors unsure of how that kind of sell-off will feed back into the global economy, especially given the Federal Reserve's plan to trim bond purchases, investors decided reducing risk was the only thing left to do.
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