Emerging Markets Face Their Moment of Truth
A swoon in developing-nation financial assets fuels global concerns, leading market commentary.
After debt inflows last year, an about-face.
Photographer: Altan Gocher/NurPhoto via Getty Images
Ask most any smart investor what could cause the next crisis in markets and the likely answer would be a sharp rise in borrowing costs brought on by a selloff in the bond market. But the thing about markets is that the pain usually originates in places where it’s least expected. That may be the case now with emerging markets.
The fact is, investors have had a few years now to prepare for the inevitable rise in bond yields that is currently underway. That’s seen in the record bets against U.S. Treasuries. What hasn’t been expected is the big slump in EM, which attracted a record $315 billion in non-resident portfolio debt flows in 2017, as measured by the Institute for International Finance. At one point on Tuesday, an MSCI index of EM currencies was down 1.07 percent, the most since June 2016, and bringing its decline so far this quarter to 2.83 percent. Losses in MSCI’s EM index of equities are almost 50 percent greater than the global market for stocks since January. A Bloomberg Barclays index of local-currency EM bonds is in the midst of its worst two-month slide since Donald Trump was elected U.S. president in November 2016.