This is what it looks like when investors run screaming from one part of the world to another.
Money has started flying out of emerging markets to safer assets in developed economies.
No fewer than 17 emerging market countries have seen their currency fall 3% or more since Monday, according to Jim Reid at Deutsche Bank.
The list includes Russia, Ghana, Guinea, Colombia, Belarus, Turkey, Malaysia and Algeria.
Societe Generale strategists said: “
Emerging market currencies and commodity prices are in a ‘death spiral’ that is destroying central banks’ efforts to bring inflation back to long-term targets.”
The cost of insuring emerging market sovereign debt against default jumped on Thursday, with the composite spread on emerging markets moving to 363 basis points at the close on Thursday, according to Markit. Credit default swap spreads on the likes of Kazakhstan, Saudi Arabia, Brazil and Lebanon all jumped more than 20 basis points.
Investors have been pulling money out of emerging market debt funds, according to Bank of America Merrill Lynch. The bank said that the exodus is the worst since January 2014. There has also been seven straight weeks of outflows from emerging market equity funds, totaling $US26 billion, according to the bank.
“EM bonds are getting beaten like a red headed stepchild,” one trader told Business Insider.
He said “all hell broke loose.”
Here’s why: China’s economic slow down and currency devaluation have taken a toll on economies that depend on Chinese demand to sell their commodities.
The Chinese property market has slowed down, and the country’s August purchasing manager index (PMI) came in at a disappointing 47.1 on Friday, down from July’s 48.2 — the lowest level since March 2009. Anything below a read of 50 indicates that the manufacturing sector is contracting.
That’s putting pressure on already record low commodity prices, making the outlook in exporting countries like Brazil and Nigeria look pretty dark.