After signs of slowing growth and a string of protests in Turkey and Brazil, investors are exiting emerging market assets and exchange traded funds in droves, with the prospect of diminished global stimulus seen as the straw that broke the camel’s back.
Over the past week, the iShares MSCI Emerging Markets Fund (NYSEArca: EEM) lost $795.9 million in assets and the Vanguard FTSE Emerging Markets ETF (NSYSEArca: VWO) experienced $111.8 million in redemptions, according to IndexUniverse data. Over the past month, EEM has declined 11.1% and VWO has decreased 11.7%.
In the three weeks to June 12, over $19 billion was funneled out developing market funds, with foreign investors dumping $5.6 billion out of Brazilian stocks and $3.2 billion out of Indian bonds this month, Bloomberg reports.
“These are pre-quake tremors: something big is coming,” Stephen Jen, the co-founder of hedge fund SLJ Macro Partners LLP, said in the article. “There’s tremendous deceleration in emerging markets. You may see crisis-like price actions without having a crisis.”
A number of factors are currently weighing on the emerging markets: popular protests gripped Instanbul, Turkey; Brazil is experiencing rising inflation and challenging government policies; the World Bank expects China to expand at its slowest pace since 1999; and other emerging countries has seen their current account deficits widen, including Indonesia, Brazil and Chile. [China ETFs Struggle After HSBC Pares GDP Estimate]
Recently, emerging markets are witnessing a severe pullback on speculation that the Federal Reserve and the European Central Bank will cutback quantitative easing.