Exchange traded fund investors are exiting the emerging markets like it’s 2008, yanking billions of dollars from the developing economies as global growth concerns and a spate of risk-off sentiment triggered a mass exodus.
Investors pulled over $40 billion out of developing economies in the third quarter, exiting the emerging markets at their quickest pace since the global financial downturn, reports Taylor Hall for Bloomberg.
The quarterly outflow was the first since 2009 and the largest since the final quarter of 2008 when traders redeemed $105 billion, according to the Institute of International Finance.
Over the past three months, the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), which tracks the MSCI Emerging Markets Index, experienced $2.9 billion in net outflows and the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), which tracks the FTSE Emerging Index, saw $3.7 billion in outflows, according to ETF.com. [Area Emerging Market ETF Investors Must Monitor]
The Institute for International Finance also projected that emerging markets will experience net outflows of $541 billion in 2015, the first year in nearly three decades that more money has left developing markets than has entered them, reports Ian Talley for the Wall Street Journal.
“The factors holding back capital flows to emerging markets will be persistent,” Charles Collyns, the IIF’s chief economist, told the WSJ. “This implies a protracted drought rather than quick relief.”
Investors pulled out of riskier emerging markets as data showed growth from China’s economy slowed, commodity prices fell and the Federal Reserve signaled an interest rate hike this year. The China slowdown is fueling the lower commodity prices and lower outlook for other major emerging economies. Moreover, rising borrowing costs, a stronger dollar and rising corporate debt loads, with the International Monetary Fund warning of corporate defaults, are adding to volatility.
Meanwhile, EEM fell 17.3% and VWO decreased 17.9% over the past three months, on pace for the largest decline in four years.
“The reaction we’re seeing is quite severe, but a lot of the damage has already probably taken place,” Brendan Ahern, managing director of Krane Fund Advisors LLC, told Bloomberg. “It’s the trifecta of slowing investment growth, declining commodity prices and the strong dollar.”
For more information on the developing economies, visit our emerging markets category.
Max Chen contributed to this article.