By Carl Delfeld of Chartwell ETF & ETFfolio
Yesterday, emerging markets were up almost 2% but for most of this year it has been much more comfortable for investors to be in the ProShares Emerging Market inverse ETF (EUM) rather than the iShares MSCI Emerging Market (EEM) ETF.
Outflows from emerging markets bond and equity funds and ETFs reached $29.5bn over the past three months, the highest level since at least 1995. Investors are rushing to the exits. Weaker commodity prices, inflationary pressures, a stronger dollar and geopolitical concerns all weighed on emerging markets not to mention slowing global growth and turmoil in banking markets.
Investors switched $1bn out of equity and fixed income funds on Monday, one of the highest daily outflows since records began in 1995, said EPFR Global, the data provider. Last week there were outflows of $1.6bn, bringing the total since June 4th to $29.5bn, the largest three-month figure since 1995.
David Lubin, emerging market strategist at Citigroup, said: “Emerging market asset prices rose strongly in a world of rapid growth and high commodity prices, creating something like a virtuous circle.
“Now we’re faced with the risk that this process is unwinding. The strength of the dollar has put emerging economies’ currencies under pressure just at the point where a rise in global risk aversion is pushing investors away from exposure to developing countries.”
The benchmark MSCI emerging market index has fallen 22% over past three months. David Oakley of the FT notes that the hardest hit stock markets in dollar terms are Ukraine, which has fallen 59% this year in part on geopolitical worries; China, down 57%, Hungary, down 49% and Vietnam, down 46% due to a combination of sharply lower growth and skyrocketing inflation.
For the first eight months of 2008, though, the emerging-markets index (EEM) was down 22.7%, and Europe, Australia and Far East (EFA) index of 23 well-developed countries is down 17%, compared to the S&P 500 index down 11.4%, and the Dow Jones Wilshire 5000 losing 10.3%.
Russia's benchmark RTS index is down a staggering 46% since its its May 19th peak.