By Polya Lesova, MarketWatch
NEW YORK (MarketWatch) -- Investors dumped emerging-market stocks and currencies Monday after the U.S. House of Representatives rejected the proposed $700 billion rescue plan for the financial sector.
Emerging equity markets in Asia, Europe, Latin America and Africa posted steep losses.
The iShares MSCI Emerging Markets Fund /zigman2/quotes/201454250/composite EEM +0.11% , which tracks the performance of the MSCI Emerging Markets index, tumbled 12%.
On Wall Street, stocks went into a free fall, with the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.10% tumbling 777.60 points, or 7%, to end at 10,365 points, its biggest ever point loss. See Market Snapshot.
The plunge came after the House voted against the rescue package, dealing a sharp blow to the Bush administration and bipartisan leaders in Congress who warn that the country is on the brink of an economic precipice. Read the full story.
Stocks in India, Russia and Brazil -- three of the BRIC heavyweights -- were deeply in the red. The markets in mainland China are closed this week for holidays.
In Brazil, the Bovespa index tumbled 9.4%. See Latin American Markets.
Earlier Monday, Russia's RTS stock index tumbled 7.1%, and India's Sensex index ended down 3.9%.
'There's just massive panic, risk reduction and broad-based deleveraging.'
Paul Biszko, RBC Capital Markets
"It's obvious that everybody is running for the door. There are very few safe havens in this environment, and none of these are in emerging markets," said Lars Christensen, chief analyst at Danske Bank. "Even the stronger emerging markets are perceived as risky."
"It's very hard to see the end of this as long as the liquidity situation remains under so much strain globally," Christensen said.
Against this grim backdrop, high-yielding, emerging-markets currencies fell sharply against the U.S. dollar. The Brazilian real tumbled nearly 6% against the dollar, the South African rand fell 3.5% and the Turkish lira dropped 3.8%.
In the debt markets, the EMBI+ spread index rose by about 30 basis points to 409 basis points, a high last seen in late 2004, according to data from RBC Capital Markets.
"There's just massive panic, risk reduction and broad-based deleveraging," said Paul Biszko, senior emerging-markets analyst at RBC Capital Markets. "[Emerging markets] is seen as a high-beta risk market and we're seeing the contagion."
In Asia, stocks finished broadly lower, with the Hang Seng index dropping 4.3%. See Asia Markets.
Elsewhere in Latin America, Argentina's Merval stock index dropped 8.7% and Mexico's IPC index fell 6.4%.
Elsewhere around the world, the Czech Republic's PX stock index dropped 5.4%, Poland's WIG20 index fell 5% and Turkey's IMKB-100 stock index declined 1.4%. South Africa's All Share stock index fell 5.8%.
In New York, the iShares MSCI Hong Kong Index Fund /zigman2/quotes/200903343/composite EWH +1.26% , which tracks the performance of the Hong Kong market, fell 11%.
The iShares FTSE/Xinhua China 25 Index Fund /zigman2/quotes/208670743/composite FXI +0.86% , which tracks the performance of the Chinese stock market, dropped 15%.
The MSCI Brazil iShares /zigman2/quotes/208893627/composite EWZ +0.87% tumbled 15%.