Anti-government protests, sparked by anger over a planned development in Istanbul, spread nationwide in Turkey on May 31, marking the most serious unrest during Prime Minister Recep Tayyip Erdogan’s decade in power. At least four people have died in clashes between demonstrators and police, and thousands have been injured.
In Brazil, protests erupted over an increase in bus fares and have spread across the country in the biggest demonstrations in the South American country in two decades.
The real fell to as low as 2.2354 per dollar today, its weakest level since April 2009, while the Turkish lira slipped to a record 1.9315.
Outstripping Crisis
In the four years through 2012, investors poured $3.9 trillion into emerging markets, outstripping the $3.1 trillion they added in the same period leading up to the global financial crisis, said SLJ Macro’s Jen, citing data from Institute for International Finance Inc.
In another sign international investor appetite is waning, South Korea raised less than a 10th of the amount planned in an auction of inflation-linked bonds today. The Finance Ministry sold 55.6 billion won ($49 million) of 10-year linkers, having offered 600 billion won, according to its website.
Losses in emerging-market currencies in coming months may approach the declines of 2008 when the real and lira slid more than 23 percent, according to Jen, a former International Monetary Fund economist who first warned about developing nations as early as January 2011.
‘Dangerous’ Times
“This is a dangerous period,” Jen said. “The Fed will start to normalize rates. It’s a gradual process, but the pressure will only point in one direction, which is in favor of the dollar and against emerging markets.”
The $14 billion Pimco Emerging Local Bond Fund, the largest developing-country debt fund, lost $69 million in May in its second monthly outflow since 2009, according to Morningstar Inc. data. Mark Porterfield, a spokesman for Newport Beach, California-based Pacific Investment Management Co. LLC, declined to comment.