- Emerging market stocks, bonds and currencies all fell on Tuesday after a coup in Thailand and riots in Hungary unnerved markets, but investors in Europe and the Americas were cautious awaiting reaction from Asian markets.

On Tuesday the Thai army took control of Bangkok without firing a shot and announced a commission to reform the constitution, despite the prime minister's declaration of a state of emergency from New York while attending the U.N. annual General Assembly.

A benchmark index for emerging markets stocks, the ISHR MSCI Emerging Markets slid more than 2 percent on the declaration of a state of emergency by Thai Prime Minister Thaksin Shinawatra after tanks were seen surrounding Government House in Bangkok.

The Thai stock exchange announced it would open as usual on Wednesday but said it would halt trading if the main index fell more than 10 percent, clearly expecting investors to sell.

"(A sell-off) will depend on the Asian markets and any more risk aversion being manufactured by the action in the baht. You will see it trickle down into the Asian markets and then into Latin America probably overnight," said Enrique Alvarez, emerging markets strategist at IDEAglobal.

The Thai baht staged its largest one-day fall in three years after the news, which led to a broad-based decline in a number of Asian currencies.

The dollar rose to 37.900 baht from 37.280 baht after the news, more than 1.3 percent on the day in the largest daily rise since October 2003.

"If you do see a spillover reaction into other Asian currencies you should see it as an opportunity and buy into it," said Marios Maratheftis, foreign exchange strategist at Standard Chartered in London, adding that the baht will come under pressure in coming days but once the political situation stabilizes the currency is likely to recover.

"I wouldn't call for a right-out shorting of baht but rather I see it as an opportunity in the crosses. For now, Thai baht against Asian crosses could be an interesting idea," Maratheftis said.

In emerging debt markets, Brazil's global bond due 2040, considered the emerging market benchmark paper due to its high liquidity, slipped to be bid at 130.125 and to yield 6.490 percent.

Thailand has only $2.1 billion in dollar-denominated government debt and the majority of the country's external debt matures between 2007 and 2008, analysts said.

"There is a risk of deterioration in the region because of the geopolitical issue," said Felipe Brandao, emerging markets director with Arkhe brokerage in Sao Paulo. "But this may be only a first impact that will be absorbed by the market."

RIOTS IN HUNGARY

Earlier on Tuesday, riots erupted in Budapest where over 150 people were hurt following revelations that Prime Minister Ferenc Gyurcsany and his Socialist party lied about Hungary's budget to win a general election in April.

The Budapest stock market's main index lost 1.21 percent, cutting in half earlier losses while Poland's main index fell 0.87 percent on the day. Prague's main stock index cut its losses but ended down 1.03 percent.

The forint lost ground against the euro, falling to a weekly low of 274.75 before gaining back some ground to trade off 0.86 percent on the day at 273.35.

Meanwhile Prime Minister Gyurcsany rejected opposition calls to quit and vowed to press on with tough economic reforms.

He won April's election partly on a promise of tax cuts but has since imposed tax hikes and benefit cuts worth $4.6 billion in 2007 alone to curb Hungary's budget deficit which will surge to 10.1 percent of gross domestic product this year.

Benign U.S. inflation data reported on Wednesday however helped cushion outflows from emerging market stock and bond funds, as the economic data bolstered investors' expectations for the Federal Reserve to leave U.S. interest rates unchanged, meaning emerging markets would still offer attractive yields.

Millionaires are multiplying in the world's fastest-growing economies, leading to a potential boon for banks that manage money for the wealthy, according to a report by the Boston Consulting Group.

Assets held by the rich in Brazil, Russia, India and China are set to rise by $2 trillion, or 71 percent, to $4.8 trillion by 2010, the Boston-based research group said today. Millionaires' wealth in the four countries is growing 11 percent a year on average, compared with 5.6 percent elsewhere.

``We are living through great years for the private banking industry,'' Christian de Juniac, who runs the consultant's wealth management unit, said in an interview from his office in London. ``As assets go up, profits go up.''

Growing ranks of millionaires may mean more customers for banks such as UBS AG, the world's largest manager of money for the rich, and Credit Suisse Group. Both banks have said they're planning to expand operations in Asia to win more wealthy clients for their fund management and private banking businesses.

Construction projects in China and India, the fastest growing of the world's 20 largest economies, are spurring demand for commodities such as iron ore from Brazil and oil from Russia.

Millionaires' wealth in the four countries is rising at an even faster pace than economic growth, the report showed. The amount overseen by wealthy people in China and India, the world's two most populous nations, will double by 2010, de Juniac said.

Rising Faster

Overall, there were 7.2 million millionaires in the world at the end of last year, up about 10 percent from a year earlier, with $25 trillion of assets, Boston Consulting said. The U.S. had 3 million, Europe about 2 million, and China about 250,000. The number of millionaires increased 5 percent last year in the U.S. and 20 percent in Asia, the report said.

China already ranks third in the world in sales of luxury goods, according to figures from JPMorgan Chase & Co.

``There is an accumulation effect,'' de Juniac said. ``When a country becomes better off, the rich tend to get a disproportionate amount of that wealth.''

The increase in the number of rich is creating demand for professional wealth management services. ``When people get richer they want their money managed in a professional way,'' de Juniac said. ``They are taking it out of their mattresses.''

Banks Rush In

The boom in wealth is attracting banks including Zurich- based UBS, Britain's Barclays Plc and Citigroup Inc. of the U.S.

UBS Chief Executive Officer Peter Wuffli said in an interview last week that India has ``very big growth potential,'' while China is ``an extremely attractive market for financial companies.'' Last year, UBS paid $500 million for 1.6 percent of Bank of China, the country's No. 2 lender, and in June received the go-ahead from Chinese authorities to set up a joint venture for a brokerage.

Credit Suisse, also based in Zurich, said earlier this month that it plans to at least double the number of employees in Asia over the next two years to tap growing wealth in the region. London-based Barclays plans to start a wealth-management unit in India and hire as many as 50 managers next year to win business in Asia's fourth-largest economy.

Citigroup, the biggest U.S. bank, said in May it will hire as many as 100 people to manage the wealth being created in India, a nation of 1.1 billion people where half the population is less than 25 years old.

The change from agrarian societies into industrial giants is mirrored in the life histories of some Asia's wealthiest. Thirty-seven-year-old Huang Guangyu, China's richest man, started life as a peasant's son. He amassed a $1.7 billion fortune by founding retailer Gome Electrical Appliance Holdings Ltd. in 1987.

Different Approach

The investing approach of clients in Asia differs from those in Europe and the U.S. While Europeans often favor bonds and those in the U.S. prefer stock-related investments, the rich in China and Taiwan are particularly interested in holding their money in cash, de Juniac said.

About 60 percent of wealthy client money in those countries is held in cash accounts, he said. That's because three quarters of millionaires there are entrepreneurs and they prefer to keep control over their assets rather than hand them over to money managers.

They keep the cash in order to do their own trades, he said. That again means a boon for the private banks.

``Not only are they getting more assets, but they are transaction oriented so there are lots of fees,'' he said.

High-return nature of emerging markets sector is evident from the worst performers' 80% growth over three years

The high-risk, high-return nature of emerging market vehicles is reflected in the fact that even the worst performer in the Global Emerging Markets peer group generated a three-year return of 76.83%.

According to bid to bid data from Standard & Poor's, over three years to the end of July, Credit Suisse Multi-Manager Emerging Markets, which invests in several of its peers within the sector, was the worst performer overall.

Among its holdings are the overall top performer, Jupiter Emerging European Opportunities, and the fifth best cumulative performer, JPM Emerging Markets.

Having made a three-year return of 201.58% against the average fund in the sector's 111.54%, the Jupiter vehicle, which is managed by Elena Shaftan and Ingrid Kukuljan, was joined at the top of the table by another portfolio that focuses purely on emerging Europe, the second best cumulative performer Credit Suisse European Frontiers.

A consistent outperformer, the Jupiter fund generated returns of 34.11% against 11.87% in the first discrete 12-month period under examination, followed by 60.28% against 50.84% in the second and 40.31% against 23.13% in the third.

While the portfolio's focus is the entire eastern European region, the bulk of its assets, 50%, are invested in Russia with Poland and Hungary also receiving hefty weightings.

Run as a best ideas fund, the concentrated product currently invests in 34 names with its top 10 positions accounting for just over 50% of the whole.

Shaftan said: "Although there are several hundred stocks in the central and emerging Europe universe, we only consider a fraction of them to be suitable for inclusion in the portfolio on the basis of liquidity or company quality.

"This number continues to grow as more and more companies in the region seek to list."

Pointing out that their stock selection process takes macroeconomic trends into consideration, Shafton said markets have recently been hit with increased volatility on the back of concerns over US interest rates.

"The resulting investor risk aversion led to significant fund outflows from all emerging markets," she said.

"The Russian market was further affected by worries that the rate hikes would cause a global slowdown and hence a correction in commodity prices. Yet the worst affected market was Turkey, where its currency came under pressure given its high debt and current account deficit."

Currently around 5% of the fund's assets are invested in Turkey.

Credit Suisse European Frontiers, managed by Elizabeth Eaton, also has the bulk of its assets invested in Russia, at 57%, though its remaining investments are spread between a shorter list of countries than the Jupiter portfolio. Poland, Turkey, Hungary and the Czech Republic are its other main investment areas.

Another consistent outperformer, the vehicle delivered returns of 24.51% in the first discrete year examined, 60.22% in the second and 38.59% in the third.

Eaton agrees with Shaftan's assertion that the second quarter of this year proved especially volatile for emerging markets, pointing to the subsequent sell off being driven mainly by external factors, such as investor concerns over interest rates.

"Additionally, commodities were subject to a reversal of fortune and prices fell considerably across a wide range of metals, including copper and nickel," she said. "Oil and gas prices, however, remained buoyant. This had a profound effect on the emerging European region, as the bias toward commodity sectors remains in many markets."

Despite this, Eaton said she continues to find Russia highly compelling with valuations cheap while strong market fundamentals are in place.

"On the other hand, we remain concerned about Turkey, which is highly interest rate sensitive due to the country's high debt levels," she said.

At the opposite end of the peer group, the Credit Suisse Multi-Manager fund, which is run by Gary Potter and Robert Burdett, was joined by sector laggard First State Global Emerging Markets, which, despite being the second worst cumulative performer, delivered a three-year return of 80.37%.

Managed by Angus Tulloch, the portfolio has been a serial underperformer returning 5.03% in the first discrete 12-month period examined, 45.43% in the second and 18.09% in the third.

This portfolio has its largest geographic weighting to the Asian region, at 51%, with exposure to eastern Europe equaling 28% while Latin American exposure stands at 16%.

Tulloch put the fund's underperformance down to the fact that both emerging Europe and Latin America have outperformed emerging Asia.