Tide goes out for emerging assets

Emerging markets have become less appealing to investors as the Fed moves to curtail its money-printing programme.

Emerging markets slumped this week. Indonesia's stock market lost almost 10% in two days. Its currency, the rupiah, has hit a four-year low against the dollar. Thailand's SET stock index slid by over 3% on Monday as the economy fell into recession. India's currency, the rupee, fell to a record low against the greenback. Brazil's real has also fallen sharply this month.

What the commentators said

The prospect of tighter money, and eventually higher interest rates, in America as the Fed begins to ease up on its money-printing programme, makes risky emerging assets less appealing to yield-hungry investors. So, money has flowed out of developing markets. At the same time, emerging-market growth has ebbed. Indeed, said Ian King in The Times, for the first time since 2007, the developed nations will contribute more to global GDP growth this year than China, India and Brazil together.

654-Jakarta-index

Growth and liquidity conceal a multitude of sins. Now that both have fallen, investors are noticing that there hasn't been as much progress on structural reforms as they would like, and they are also fretting about vulnerabilities that they were happy to ignore in good times.

Enter Indonesia and India with their gaping current-account deficits. This means they rely on foreign money to make ends meet and the danger is that much of it will leave now that the tide is going out for emerging assets. Five years after the global crisis rocked the rich world, it may now be emerging markets' turn, reckoned Stephen Jen of SLJ Macro Partners. "This could get serious."

Recommended

Three top-notch Asian stocks to buy
Share tips

Three top-notch Asian stocks to buy

Professional investors Adrian Lim and Pruksa Iamthongthong, managers of the Asia Dragon Trust, pick three of their favourite Asian stocks to buy now.
23 Sep 2022
Seoul attempts to close the “Korea discount” for stocks
Emerging markets

Seoul attempts to close the “Korea discount” for stocks

South Korean stocks suffer from the “Korea discount” – with the country still classified as an emerging market, investors are reluctant to pay a premi…
21 Sep 2022
India’s economy has come a long way in 75 years, but where next?
Emerging markets

India’s economy has come a long way in 75 years, but where next?

India has come a long way since independence to become the world's fifth-largest economy. But early mistakes and now a divisive leader are holding bac…
12 Sep 2022
Brazilian stocks will bounce back in 2023
Emerging markets

Brazilian stocks will bounce back in 2023

Brazil's Ibovespa stockmarket index has fallen by 9% since it peaked in April. But with an election in 2023 and current president Jair Bolsonaro on co…
7 Sep 2022

Most Popular

Why everyone is over-reacting to the mini-Budget
Budget

Why everyone is over-reacting to the mini-Budget

Most analyses of the chancellor’s mini-Budget speech have failed to grasp its purpose and significance, says Max King
29 Sep 2022
How the end of cheap money could spark a house price crash
House prices

How the end of cheap money could spark a house price crash

Rock bottom interest rates drove property prices to unaffordable levels. But with rates set to climb and cheap money off the table, we could see house…
28 Sep 2022
Why UK firms should start buying French companies
UK stockmarkets

Why UK firms should start buying French companies

The French are on a buying spree, snapping up British companies. We should turn the tables, says Matthew Lynn, and start buying French companies. Here…
28 Sep 2022