For Emerging Markets, It Is Now Worse Than The Asian Financial Crisis

Tyler Durden's picture

"It’s Black Wednesday for emerging markets," one strategist warned and Thursday is not looking any better, as SocGen's Berg warns "The rout in emerging markets could continue for some time, especially as the major global central banks have exhausted their ammunition in recent years, making it unlikely that they will rescue global markets this time around." In fact, as Bloomberg reports, this year's EM turmoil is already worse than in the same period in 1998's Asian financial crisis (and EM FX is even worse).

The MSCI Emerging Markets Index dropped 3 percent to 692.76, the lowest close since May 2009.

More than $2 trillion has been wiped out from the value of developing-nation equities this year as the MSCI Emerging Markets Index slid 13 percent, the worst start to a year since data began in 1988. As Bloomberg reports, The drop has exceeded the 7.9 percent decline in the gauge in the same period in 1998 during the Asian financial crisis and the drop in 2009 amid the global financial crisis.

“We are now in the correction territory,” Don Townswick, director of equity products at Conning Inc. Indian stocks are on the cusp of a bear market, potentially joining the three out of every four major emerging stock markets that have fallen 20 percent from peaks.

But it's not just stocks, EM FX markets are collapsing as traders are betting that it’s become too expensive for policy makers to continue defending exchange rates after investors and companies pulled $735 billion out of developing nations last year, according to the Institute of International Finance.


“With some losses already booked this year in their portfolios, investors will avoid risk as much as possible," said Attila Vajda, managing director at Singapore-based advisory firm Project Asia Research & Consulting Pte. “Investors remain more pessimistic with the global outlook."

And finally EM debt is tumbling.
The premium investors demand to hold emerging-market debt over U.S. Treasuries widened nine basis points to 481, according to JPMorgan Chase & Co. indexes.


Which is why EM central bankers such as Mexico;s Carstens are begging for moar QE...

Central banks in emerging markets could follow counterparts in the developed world and become “market makers of last resort”, using unconventional monetary policies to try and stimulate their flatlining economies, according to Mexico’s central bank chief.


“Emerging markets need to be ready for a potentially severe shock,” Mr Carstens told the Financial Times. “The adjustment could be violent and policymakers need to be ready for it.”


Policymakers and economists have warned that heavy selling of EM stocks and bonds by international investors since the middle of last year threatens to provoke a credit crunch that would make it hard for EM companies to service their debts.


Many EM companies have filled up on cheap credit over the past decade, after a commodities boom and ultra-loose monetary policies led by the US Federal Reserve resulted in very low borrowing costs. As investors pull out, those costs are set to soar.


Mr Carstens said the required policy response from EM central bankers would stop short of outright “quantitative easing” or QE — the large-scale buying of financial assets undertaken by the Fed and other developed market central banks.


But it would include exchanging high risk, long-dated assets held by investors for less risky, shorter-dated central bank and government liabilities.

So Operation Twist? If it were to happen, maybe this time they will use the break to delever?

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Minions's picture
Minions (not verified) Jan 20, 2016 9:48 PM

Looks like the money god is failing and becoming a problem >>

Never One Roach's picture

There's a good reason, both historic and common sensical, Asians hold gold as part of thier life savings.


It's a lesson many Westerners have a hard time learning.

Yen Cross's picture

  Loyalty, comes to mind? 

bunnyswanson's picture

Trust, or rather lack of trust?

cheka's picture

back to the old days -- emerging market and oil volatility

Spitzer's picture

back in the old days, the EMs were the debtors. Now they are the creditors. So this all ends up on the US's doorstep

Yen Cross's picture

 Surround yourself with "like minded' individuals.

   You refuse to allow any individual now, or in the future, to dictate the outcome, of any decision you make.


ebworthen's picture

Well, let us hope it pulls the biggest Ponzi house of card the U.S. "Stock Market" down to its knees.

S&P 666 true valuation, along with Gold at $10,000/troy ounce and Silver $150/troy ounce.

Roll the guillotines, prepare the hempen rope!  Hang the moneychangers and their lackey's!

laomei's picture

I really hate to break it to you, but if your gold and silver are ever worth anything, the government won't let you keep them anyways.  And wiping out the stock market will only serve to wipe out your retirement accounts and most companies that rely on equity financing.  Government will step in anyways and you'll just get poorer.  Not sure what you're cheerleading for.  Unless you're living in the shithole that is russia and wishing your suffering on the rest of the world.  

Max Steel's picture

You must have lost a huge amount of money in Chinese stock markets that why your views suddenly distorted after that event.

Atomizer's picture

Green and red Christmas charts. ISIS has new weapons from Santa Claus. Watch Q2 break through in earnings. 

NoDebt's picture

"EM FX markets are collapsing as traders are betting that it’s become too expensive for policy makers to continue defending exchange rates"

Which, in the longer term, means they will at least have the opportunity for a recovery.  Unlike the US and other massively mis-allocated debtor nations that will fight this fucking thing all the fucking way down.

When the wind is howling you must be able to bend to avoid breaking.  And the wind is fuckin' howling in the commodities economy.

Lastline's picture

De-merge bitcheZ!

pebblewriter's picture

One natural outcome of EM currency weakness is yen strength.  All that hot money flowing back to the slush fund that is the Japanese "markets."

As the yen strengthens, it puts pressure on the yen carry trade, which in turn puts pressure on stocks. see:

We've seen repeated sell-offs in SPX every time the USDJPY approaches the bottom of a channel it's been in since Nov 2014.  The bonus?  The sell-offs are getting much worse with each successive approach.

Either the BOJ devalues the yen again -- and, I mean right here & now -- or we can say goodbye to the neverending rally.

FedFunnyMoney's picture

Behold the aftermath of all the Fed's hot money from QE.

pebblewriter's picture

not to mention the BoJ's hot money

new game's picture

money concentrated in bubbley debt with impaired assets- u mean that qe? exception: treasuries for now.

bonds are looking pretty damn good. ha, for now. getting flater, sure sign we be in a recession by h2..

wow, this took forever to unfold...

Vlad the Inhaler's picture

New drinking game - worst ever!

Yen Cross's picture

 Back in '08 I sort of understood things... Now it's like playing a game of horse shoes.

Winston Churchill's picture

They can change the rules anyttime they like Yen.

Complacency kills.