Daily Management Review

Emerging equity markets are bleeding


06/18/2018


Tightening of the Fed’s monetary policy and the trade confrontation between the US and other countries resulted in a sharp decline in demand for assets in emerging markets. According to the EPFR, investors have withdrawn from the funds of developing countries $ 1.3 billion over the past week, and for four weeks - almost $ 4 billion.



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The latest Emerging Portfolio Fund Research (EPFR) data show a decrease in the interest of international investors in the assets of developing countries. According to an estimate based on the BofA Merrill Lynch Global Research report (taking into account the EPFR data), by the end of the week ended June 13, emerging-market funds lost more than $ 1.3 billion. A week earlier, the clients withdrew symbolic $ 40 million from such funds. The continuous outflow of investments keeps going for the fourth consecutive week, and during this time, investors have withdrawn almost $ 4 billion. This is the worst result since the end of 2016.

The decrease in investors' interest in risky assets can be explained by tightening monetary policy of the US Federal Reserve. Last Wednesday, as most analysts expected, the open market committee of the Federal Reserve raised the base interest rate by 0.25 pp, to 1.75-2% per annum, and also raised the forecast for GDP growth this year from 2, 7% to 2.8%. In addition, the regulator decided on the number of interest rate increases before the end of the year. Eight committee members voted in favor of another two revisions, and only seven were for one.

The US trade war, which keeps involving more and more countries, also causes concern among investors. Since June 1, US President Donald Trump, after a two-month break, has introduced protective duties on imports of steel and aluminum from Europe, Canada and Mexico. The affected countries reacted by introducing reciprocal duties on American goods. Already on June 15, Donald Trump said that Washington introduced an import duty of 25% on imports from China in the amount of $ 50 billion per year. The Minister of Commerce of China, in turn, said that China will introduce symmetrical duties on American goods.

The flight of investors led to a collapse of the stock indices of developing countries. According to Bloomberg, the Brazilian stock index, which declined by 4.8% over the week, and the month by more than 18%, became an outsider. Among the developed countries, the Italian FTSE MIB index (8.7%) showed the maximum decline.

source: bloomberg.com






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