Argentina imploded. Beijing let the yuan slip to the lowest in at least a decade. Global central banks signaled they\u2019re spooked about slowing growth by rushing to cut rates.<\/p>\n
By almost any measure, August was a month to forget for emerging-market investors.<\/p>\n
Consider the following: Developing-nation currencies had their worst August in at least 22 years, puncturing a carry trade bet that had just begun to turn positive.<\/p>\n
Investors yanked so much cash from exchange-traded funds that flows are poised to turn negative for the year. On top of that, dollar-bond sales fell to a 42-month low.<\/p>\n
Malcolm Dorson, who helps manage $640 million of emerging-market funds at Mirae Asset Global Investments in New York, says it\u2019s a good thing he took time off with his family earlier in the summer.<\/p>\n
\u201cThe stress on currencies and price movements kept managers on their screens,\u201d he said. Investors have \u201cto be on the ball either to take advantage or re-position, all while staying in front of your investors. I\u2019m sure many trips were canceled or postponed.\u201d<\/p>\n
Worst of the Worst<\/strong><\/p>\n All told, emerging-market stocks erased $873 billion in market value in August. Bears tripled the money on bets developing-nation equities would see further declines, handing the iShares MSCI Emerging Markets Exchange Traded Fund its biggest-ever surge in short interest.<\/p>\n \u201cSeptember will be more of the same,\u201d said Brendan McKenna, a foreign-exchange strategist at Wells Fargo Securities LLC in New York.<\/p>\n \u201cEven though China laid out their retaliation plans, it wouldn\u2019t surprise me if they got even more aggressive with countermeasures.\u201d<\/p>\n The month\u2019s travails actually started on the last day of July, when the Federal Reserve cut interest rates for the first time in more than a decade.<\/p>\n In itself, that was no surprise – yet riskier assets slid and the dollar rallied as Chair Jay Powell downplayed hope the move marked the start of a sustained easing cycle.<\/p>\n Developing-world currencies, on a mostly upward slope since May, crumbled since then and are now hovering at their lowest since November.<\/p>\n Don\u2019t blame the Fed entirely, though. Even the US central bank says there are some growth levers it can\u2019t control.<\/p>\n Take the US-China trade war: Only this month, Beijing let the yuan fall below 7 to the dollar and announced fresh tariffs on US goods, retaliating against levies imposed by President Donald Trump, some of which are set to go into effect Sept. 1.<\/p>\n As Trump and Xi Jinping hurled escalating threats, while still hinting at optimistic negotiations, the JPMorgan Emerging Markets Volatility Index jumped by the most since December 2014.<\/p>\n US-China trade war weighed on emerging-market currencies<\/strong><\/p>\n Fallout from the trade battle put more pressure on growth and pushed policy makers in at least 12 countries, from Thailand and Indonesia to Sri Lanka and Peru, to follow the Fed\u2019s lead and reduce rates.<\/p>\n Mexico surprised some analysts with its first cut in five years and Egypt trimmed its benchmark rate by 150 basis points, more than the 100 expected.<\/p>\n A lack of good fundamental data weighed on developing-market assets in the month, said Sacha Tihanyi, deputy head of emerging-market strategy at TD Securities.<\/p>\n True, some developing nations were spared the full force of the trade fallout.<\/p>\n The Thai baht was the lone developing-nation currency that managed to stay in the green against the dollar in August, reflecting its insulation from China and its trade drama, according to Wells Fargo\u2019s McKenna.<\/p>\n \u201cThere is definitely damage that\u2019s been done,\u201d said Eric Baurmeister, who helps manage $12 billion in emerging-market debt at Morgan Stanley Investment Management Inc. in New York.<\/p>\n \u201cThe benefit of doubt is gone, and the market needs to see documents signed, trade deals done before they get really excited.\u201d<\/p>\n It wasn\u2019t a pretty month in South Africa, where the rand posted its worst performance since February and currency volatility jumped by the most in 2019 as the nation narrowly avoided a recession.<\/p>\n Investor attention focused on the troubled utility, Eskom Holdings, as government efforts to ease its debt burden by selling some power plants immediately ran into resistance.<\/p>\n In Turkey, meantime, the lira halted a three-month rally and fell more than 4% as the nation struggled to recover from recession. Economists cut Turkey\u2019s 2020 growth outlook to 2.1%, almost half of the estimates they had made in June last year.<\/p>\n Then there was Argentina\u2019s stunning presidential primary result. Opposition candidate Alberto Fernandez trounced incumbent market darling, Mauricio Macri, in the primary vote, causing the peso to lose a quarter of its value in three days.<\/p>\n The nation has since poured its foreign reserves into propping up the currency and is seeking a \u201cvoluntary reprofiling,\u201d with a plan to push out maturities on $101 billion of debt.<\/p>\n Now, as the Labor Day holiday begins in the US, Mirae\u2019s Dorson said he won\u2019t stray far from his screens. \u201cMiddle East markets are open on Sunday and most of the world is working Monday, so I\u2019ll be watching and online all weekend,\u201d he said.<\/p>\n
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