Investors are pulling money from emerging markets at the fastest pace in two years as slowing economic growth and the prospect of less global stimulus sink stocks, bonds and currencies from India to Brazil.
More than $19 billion left funds investing in developing-nation assets in the three weeks to June 12, the most since 2011, according to EPFR Global. Foreign investors dumped an unprecedented $5.6 billion of Brazilian stocks and $3.2 billion of Indian bonds this month, exchange data show. JPMorgan Chase & Co's emerging currency index is down 1.4 per cent this quarter, while the rupee hit a record low last week and the real reached the lowest level since 2009.
"These are pre-quake tremors: something big is coming," Stephen Jen, the co-founder of hedge fund SLJ Macro Partners LLP, said in a phone interview from London on June 12. "There's tremendous deceleration in emerging markets. You may see crisis-like price actions without having a crisis." (ASIA BUSINESS SENTIMENT SURVEY)
Cheap money
Speculation that the Federal Reserve and European Central Bank will end the flood of cheap money is contributing to the pullout. Fed Chairman Ben S. Bernanke said yesterday that policy makers may "moderate" their pace of bond purchases later this year, reducing money being pumped into the US economy, some of which has found its way to other countries.
ECB President Mario Draghi said June 6 that the central bank sees no reason for "immediate action" on asset purchases or further cuts to its 0.5 per cent main interest rate.
India's rupee weakened 1.9 per cent against the dollar to a record low as of 8:04 am in London. Malaysia's ringgit depreciated 1.7 per cent, the biggest drop since November 2011. The ruble declined 0.8 per cent to an 11-month low and South Africa's rand weakened 0.5 per cent. The Polish zloty sank 1.1 per cent versus the euro.
MSCI Inc.'s emerging-markets stock index is down 12 per cent this year, compared with a 14 per cent advance in the Standard & Poor's 500 Index. The developing-nation measure is trailing the US benchmark by the most since 1998.
Carry trade
Local-currency government bonds in emerging countries have slumped 4.8 per cent since December 31, data compiled by JPMorgan show. Commodities, as measured by the S&P GSCI Index, dropped 1.7 per cent in the same period as demand from China waned.
After years of "substantial inflows," emerging markets are "vulnerable" to "global portfolio relocations," Deutsche Bank AG analysts led by Marc Balston in London wrote in a client note on June 13.
More than $19 billion left funds investing in developing-nation assets in the three weeks to June 12, the most since 2011, according to EPFR Global. Foreign investors dumped an unprecedented $5.6 billion of Brazilian stocks and $3.2 billion of Indian bonds this month, exchange data show. JPMorgan Chase & Co's emerging currency index is down 1.4 per cent this quarter, while the rupee hit a record low last week and the real reached the lowest level since 2009.
"These are pre-quake tremors: something big is coming," Stephen Jen, the co-founder of hedge fund SLJ Macro Partners LLP, said in a phone interview from London on June 12. "There's tremendous deceleration in emerging markets. You may see crisis-like price actions without having a crisis." (ASIA BUSINESS SENTIMENT SURVEY)
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The reversal of the $3.9 trillion of cash that flowed into emerging markets the past four years has been compounded by popular protests in Turkey and Brazil challenging government policies on everything from fighting inflation to developing infrastructure. China (EHGDCNY), the largest developing economy, is forecast by the World Bank to expand at the slowest pace since 1999 this year, while current-account deficits in Indonesia, Brazil and Chile have grown to the widest in a decade.
Cheap money
Speculation that the Federal Reserve and European Central Bank will end the flood of cheap money is contributing to the pullout. Fed Chairman Ben S. Bernanke said yesterday that policy makers may "moderate" their pace of bond purchases later this year, reducing money being pumped into the US economy, some of which has found its way to other countries.
ECB President Mario Draghi said June 6 that the central bank sees no reason for "immediate action" on asset purchases or further cuts to its 0.5 per cent main interest rate.
India's rupee weakened 1.9 per cent against the dollar to a record low as of 8:04 am in London. Malaysia's ringgit depreciated 1.7 per cent, the biggest drop since November 2011. The ruble declined 0.8 per cent to an 11-month low and South Africa's rand weakened 0.5 per cent. The Polish zloty sank 1.1 per cent versus the euro.
MSCI Inc.'s emerging-markets stock index is down 12 per cent this year, compared with a 14 per cent advance in the Standard & Poor's 500 Index. The developing-nation measure is trailing the US benchmark by the most since 1998.
Carry trade
Local-currency government bonds in emerging countries have slumped 4.8 per cent since December 31, data compiled by JPMorgan show. Commodities, as measured by the S&P GSCI Index, dropped 1.7 per cent in the same period as demand from China waned.
After years of "substantial inflows," emerging markets are "vulnerable" to "global portfolio relocations," Deutsche Bank AG analysts led by Marc Balston in London wrote in a client note on June 13.