The flight out of emerging markets started last May when Fed Chairman Ben Bernanke hinted that the Fed would start tapering it stimulus. And now that flight has reached fever-pitch.
Last month, investors pulled money out of emerging market ETFs at the fastest pace on record, with $7 billion in outflows. Redemptions accelerated further last week after data showed a contraction in Chinese manufacturing.
The iShares MSCI Emerging Markets ETF (EEM), a proxy for emerging markets, has seen its assets decline by 11% so far this year:
Emerging markets previously benefited from the flow of cheap money from the Fed’s stimulus. But this year the MSCI Emerging Markets Index is off to its worst start since 2008, with close to $500 billion erased from equities.
Still, the bleeding out of emerging markets is a bit overdone. The declines we are seeing are not a shocking development…this has been going on for some time. This race for the exits is based more on media hysteria than anything else.