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 percent this quarter, while the rupee and Turkish lira hit record lows and the real reached its weakest 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.”
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, 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 U.S. economy, some of which has found its way to other countries.
India’s rupee weakened as much as 2.2 percent against the dollar today to a record 59.98, and was at 59.575 as of 7:47 a.m. in New York. Raghuram Rajan, the chief economic advisor to India’s finance ministry, said in New Delhi today that the Asian nation will take “appropriate” steps to contain the rupee’s volatility.
Malaysia’s ringgit depreciated 1.7 percent, the biggest drop since November 2011. The Russian ruble declined 1.9 percent to an 11-month low and South Africa’s rand fell 2.9 percent, approaching the weakest level in four years. Poland’s zloty sank as much as 2 percent versus the euro to the lowest in a year.
MSCI Inc.’s Emerging Markets stock index is down 13 percent this year, compared with a 14 percent advance in the Standard & Poor’s 500 Index. The developing-nation measure is trailing the U.S. benchmark by the most since 1998.
Leading Declines