No end in sight, as money flees 'cheap' emerging markets
By Sujata Rao
LONDON Oct 5 (Reuters) - Money is fleeing emerging markets en masse in 2015 for the first time in 27 years and few global investors are tempted to return to equities, currencies or bonds there as many of the populous economies defining the asset class slow inexorably.
Over the three decades or so of the modern 'emerging markets' securities industry, periodic shocks and sharp drawdowns have typically been followed by big returns for those bold enough to snap up cheap assets during the darkest moments.
But this episode - seeded by fears of tighter U.S. credit and a rising U.S. dollar alongside a commodity collapse accompanying a secular slowdown of China's economic growth - has a different feeling and there's been a slow bleed for more than two years already.
According to world's most closely watched monitor of capital flows to emerging markets, the Institute of International Finance, the developing world will record net capital outflows this year for the first time since 1988.
Funds fear that instead of widespread defaults and currency collapses, the crisis this time is more measured and slower moving, and many of the over-investment and over-borrowing problems may take many painful years to correct themselves.
The market rally of the past week - sparked by expectations of another delay to U.S. rate hikes as jobs growth slows - is therefore seen fizzling out again soon.
"At several points in the last year-and-half I thought we were turning a corner and of course we haven't. We see these blips of outperformance, then it continues on its downward trend," said Jose Morales, CIO of Mirae Asset Global Investments.
The reason, according to Morales, is the close correlation of emerging equities with the growth premium developing countries enjoy over richer peers. This premium, UBS data shows, has shrunk to the narrowest since 1999. Continuación...