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Russia, Brazil Lead Worldwide Equities Plunge

Monday, Oct. 6, 2008

Global stock markets plunged precipitously today, as fears of a global credit squeeze and recession continued. The U.S. Dow Jones and NASDAQ indexes were down about 7 and 8 percent, respectively, as of this writing, at 3 p.m. in Washington.

But the U.S. plunge looked relatively minor next to the performance of equities in Brazil and Russia, which were the two biggest laggers among world markets.

Brazil's BOVESPA index was down more than 12 percent as of this writing, and Russia's MICEX index dropped an astonishing 18 percent, even though trading was halted three times during Monday's session.

Why the huge drops? As Bloomberg reports, in general there was a "flight to quality" in world markets, which of course hurts emerging markets that are viewed as relatively less safe shelter from the economic storm.

But Brazil and Russia also have something in common that perhaps makes their economies vulnerable if the chaos of recent weeks leads to global recession: They are heavily involved in the production of commodities, the demand for which is particularly sensitive to economic downturns.

A look at the stocks that make up the Brazilian and Russian indexes tells the tale. Russian materials (read: metals) stocks got crushed on Monday. One MICEX company, Norilsk Nickel, was down almost 60 percent.

The story was similar in Brazil. The stock prices of materials companies -- producers of steel, minerals, petrochemicals, paper products and the like -- that are part of the BOVESPA were down almost 14 percent as of this writing.

On the other hand, the stock price of the largest company in Russia, OAO Gazprom, was down a mere 4 percent on Monday. And while the price of a barrel of oil dropped below $90 for the first time in more than a year, energy prices are still plenty high.

It will be interesting to watch what kind of affect this global economic slowdown will have on rising economic powers like Russia and Brazil, but it's no doubt premature to declare Russia's energy-fueled rise kaput.