Investors are pulling money from exchange-traded funds that track emerging markets at the fastest rate on record, as China’s slowing growth and cuts to central-bank stimulus sink currencies from Turkey to Brazil.
More than $7 billion flowed from ETFs investing in developing-nation assets in January, the most since the securities were created, data compiled by Bloomberg show.
The iShares MSCI Emerging Markets ETF has seen its assets shrink by 11 percent, while the Vanguard FTSE Emerging Markets ETF is poised for the biggest monthly redemption since the fund was started in 2005.
The Wisdom Tree Emerging Markets Local Debt Fund is on track for an eighth straight month of withdrawals.
Investors accelerated redemptions after data showed Chinese manufacturing contracted and Argentina’s unexpected devaluation of its peso dented confidence in Latin America. Surprise rate increases by central banks in Turkey and South Africa failed to boost their currencies, while the U.S. Federal Reserve opted to press on with reductions to its monetary stimulus.
“A lot of speculative money has been circulating in the emerging markets and the party seems to be over, at least for now,” said Howard Ward, the chief investment officer for growth equity at Rye, New York-based Gamco Investors Inc., which oversees about $40 billion. “There is a growing lack of confidence in the economic policies of many emerging markets at a time when growth is slowing and inflation is a real problem.”
Emerging economies have benefited from cheap money as three rounds of Fed bond buying pushed capital into their borders in search of higher returns. The central bank began paring the purchases by $10 billion to $75 billion this month and announced plans to reduce the amount by another $10 billion.
The MSCI Emerging Markets Index of equities is off to the worst start to a year since 2008, with almost $500 billion erased from stocks this year. Turkey and South Africa followed counterparts from Brazil to India in tightening monetary policy as exchange rates for the lira and the ruble tumbled to records.
