Emerging markets are having the worst start to a year since the asset class came into being in 1988. The brutal losses have erased almost $5 trillion from equity values since mid-January, with stocks in Colombia, Greece, and elsewhere down more than 40%. Emergency rate cuts from South Korea to Turkey did little to calm investors, who pulled a record $4 billion from emerging markets exchange-traded funds over the five days ended March 13. Latin American currencies keep hitting lows against the dollar. Mexico and Colombia, countries that rely on oil revenue, saw their currencies fall more than 20%.
The crisis has been especially dramatic in Brazil. Six times in eight days, stock markets fell sharply enough to trigger the circuit breakers that kick in to halt trading when losses are too steep. The real sank 2% on March 9, when oil crashed, then 3.7% two days later and another 3.2% on March 16. The rapid drop in the real will raise the price of imports, adding pressure to inflation and forcing companies and people to revise their budgets. “It was six months in one day,” says Marco Antonio Mecchi, a 25-year market veteran who founded MZK Investimentos. Mecchi and two other Brazilian investors described an exhausting few days—hundreds of unread messages, long hours watching screens flash red, and sleepless nights watching Asian markets.