Breaking The Habit

Almost half of the world's biggest stock indexes fell into a bear market as mounting concern about a U.S. recession dragged down banking and retail shares across Asia, Europe and Latin America.

The MSCI World Index's 3 percent decline yesterday, the steepest since 2002, left benchmarks in France, Mexico, Italy and 35 other countries at least 20 percent below their highs in the last year. The Standard & Poor's 500 Index may post its biggest decline since 2001 when the U.S. market resumes trading today after the Martin Luther King Day holiday, futures showed.

UBS AG and Bank of China Ltd. led financial companies lower after banks lost more than $100 billion on credit investments. Bang & Olufsen A/S and Wal-Mart de Mexico SAB were among consumer stocks that tumbled amid signs the world's biggest economy is shrinking. Even with MSCI World valuations at the cheapest since at least 1995, some of the biggest investors say stocks may fall further.

``I'm struggling to find a catalyst that will turn this market around,'' Bob Parker, who helps oversee more than $600 billion at Credit Suisse Asset Management in London, said in a Bloomberg Television interview. ``What we need is evidence that the write-offs in the financial-services sector are behind us, and we are probably only going to get that in the second quarter. Clearly the market situation is fairly ugly at the moment.''

Sept. 11

Europe's Dow Jones Stoxx 600 Index yesterday tumbled the most since the Sept. 11 terrorist attacks, sending it into a bear market, commonly defined as a drop of more than 20 percent in a 12-month period. Hong Kong's Hang Seng Index slumped the most in six years.

The MSCI World Index of 23 developed markets is down 17 percent from its Oct. 31 record. The MSCI gauge of developing nations also reached a bear market yesterday. Declines in Lima- based Cia. Minera Milpo SA and Tainan, Taiwan-based Catcher Technology Co. led this year's 14 percent retreat.

Japan became the first of the world's 10 biggest stock markets in November to enter a bear market since the summer's U.S. subprime mortgage collapse. China followed later that month before the benchmark CSI 300 Index recovered and rose 162 percent for the year.

Among 80 equity national equity benchmarks tracked by Bloomberg, indexes in Argentina, Australia, Austria, Belgium, Bulgaria, Chile, Colombia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Hong Kong, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Mexico, Namibia, the Netherlands, Norway, Peru, Poland, Portugal, Romania, Singapore, Spain, Sweden, Switzerland, Sri Lanka, Turkey, Venezuela and Vietnam also have dropped at least 20 percent from recent highs.

S&P 500's Drop

The S&P 500 has fallen 9.8 percent so far this year, while declines in the U.K. and Germany yesterday left those countries' benchmark indexes down 14 percent and 16 percent respectively. Futures on the S&P 500, the benchmark for American equities, dropped 4.5 percent yesterday.

``We've seen panic selling,'' said Matthias Jasper, head of equities at WGZ Bank in Dusseldorf, Germany. ``Particularly small investors lost their nerve. These people are selling with conviction.''

The slump has made stocks cheap by historical standards. The 1,953-member MSCI World is now valued at 14.1 times its companies' profits, the lowest since at least 1995, according to data compiled by Bloomberg. Europe's Stoxx 600 has a price-to- earnings ratio of 10.7, the smallest since at least 2002.

Fed funds futures show that 72 percent of traders expect the Federal Reserve to cut its benchmark rate to 3.5 percent from 4.25 percent on Jan. 30. Banks and consumer stocks have failed to recover even after policy makers lowered the target rate for overnight loans between banks three times since September from 5.25 percent.

Changing Tide

``The U.S. rate cut expected at the end of the month should be a support for stocks,'' said Kilian de Kertanguy, a fund manager at Cholet-Dupont Gestion in Paris, which oversees $2.3 billion. ``I'm not sure that it's a bear market. It's more like the tide is changing.''

Shares of Zurich-based UBS, Europe's biggest bank by assets, have dropped by almost half since the Stoxx 600 reached a six- and-a-half-year high on June 1. Beijing-based Bank of China, which has the largest subprime-related holdings among Asian banks, has plunged 33 percent since the end of October.

Bang & Olufsen, whose luxury consumer electronics are used in Audi sports cars, fell the most ever in Copenhagen trading on Jan. 9 after reducing its forecast for annual earnings. The Struer, Denmark-based company's shares have lost 38 percent this year. Mexico City-based Wal-Mart de Mexico, Latin America's largest retailer, fell the most since February 2007 yesterday, for a decline of 7.4 percent this year.

``It's kind of a panic attack,'' said Franz Wenzel, deputy director of investment strategy at Axa Investment Managers in Paris, which oversees $647 billion worldwide. ``We remain cautious.''