MarketSaga

Saga of Financial Markets

Fri12152017

Last updateSat, 29 Jul 2017 12am

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End of Emerging Market Growth Story

“The EM story is based on rapid growth, led by exports, which delivers large current account surpluses, which leads to the accumulation of foreign exchange reserves and the expansion of domestic credit,” David Lubin, head of Emerging Market Economics at Citigroup says. “Every single element of that story is no longer true.”

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Why Hedge Funds Bet Against Emerging Markets

Hedge fund managers are positioning themselves to profit from a slowdown in developing economies, led by overheated credit markets in China. A number of them are buying protection on sovereign debt through credit default swaps. In short, they are betting against emerging markets because of their concerns on slower growth in China and potentially a “hard landing”. Add a comment

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$61.6B Withdrawn from Bond Funds June 2013

According to TrimTabs.com, a record $1.21 trillion poured into bond funds in the four years from 2009 through 2012, however, the recent bond-fund outflows shatter the previous record of $41.8 billion in October 2008.  Through June 24, investors have pulled a net $52.8 billion from traditional bond funds and another $8.9 billion from exchange traded bond funds. Foreign bond fund ETF outflows hit $1.4 billon in May – 14.4% of assets.

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$80 Billion Leaves Bond Funds, Stocks Lose $2.7 Trillion

The global sell-off in bonds began on May 22, after the minutes of the Fed’s policy meeting signalled that its bond-buying program which has suppressed yields and boosted stocks could soon to be tapered.  According to TrimTabs, $80 billion poured out of exchange-traded (estimated to have lost $9 billion) and mutual bond funds (estimated to have lost $70.8 billion) in June, nearly double the amount of that at the height of the financial crisis in October 2008 ($41.8 billion).  As for stocks, more than $2.7 trillion was wiped from global equities in June, as 44 out of 45 benchmark stock indexes tracked by the MSCI All-Country World index retreated.

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Emerging Market Sell-off is Selective

The recent emerging market sell-off – prompted mainly by fears that the US Federal Reserve could soon wind down the quantitative easing and worried about slower growth in China, is selective. Investors are mostly discriminating between good bets and bad, although some have rushed to sell what they can when faced with illiquid markets.  Emerging market equities are as a whole down 10% on the year, whereas commodity-producing emerging markets are down more than 20% due to weaker demand from China. Add a comment

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