The flood of capital gushing out of emerging markets has risen towards $US1 trillion over the past 13 months, roughly double the amount that left during the financial crisis, amid slumping confidence in developing economies. __ http://www.afr.com/markets/currencies/emerging-markets-rocked-by-us1tn-capital-flight-as-confidence-slumps-20150818-gj2b80
Capital is fleeing emerging markets — including BRICS — looking for safer waters.
More than $5 trillion have been wiped from the value of global stocks since China’s shock devaluation of the yuan two weeks ago. Investors withdrew $1.9 billion from U.S. exchange-traded funds that invest in emerging-market stocks and bonds …
… Equities in Vietnam, India, the Philippines, Saudi Arabia and Poland dropped at least 5.3 percent, while Brazil’s Ibovespa lost 3 percent in Sao Paulo. The MSCI Emerging Markets Index fell 5 percent to 771.77 in New York, the most since September 2011 and bringing its seven-day retreat to 11 percent.
Out of all emerging markets, China is the largest — the trendsetter. Other emerging markets in Asia, Africa, South America, and Central America are heavily dependent upon China markets.
Capital outflows from China have surged to $190bn over the last seven weeks, forcing the authorities to intervene on an unprecedented scale to defend the Chinese currency. ___ China First
As China’s markets slump, global demand for commodities such as oil, metals, ores, coal, and other materials will slump alongside. The other BRICS, plus other emerging nations, follow where China leads.
Little of Africa remains untouched by the Chinese. Beijing has outstripped allcomers as a source of funds and now accounts for $3 of investment to every $1 from the US. Whether they are a source of minerals, metals, oil, agricultural produce or labour, few countries have missed out.
… Most concern centres on Brazil, not just because it is Latin America’s biggest economy but because of its cocktail of economic and political risks. Output is falling, inflation is in double digits, and it is running big budget and current account deficits.
… The collapse in commodity prices also comes at a bad time for Argentina, Latin America’s third-biggest economy, which is already battling with stagflation – an inflation rate close to 30% and no growth. Oil-dependent Venezuela, meanwhile, is running a 20% budget deficit and a current-account deficit of almost 5% following the collapse in the cost of crude.
It all comes back to China. China is the rock to which Russia’s Putin has tied his nation’s future. The same is true for most other emerging economies. If China experiences an unprecedented financial and political crisis, the emerging world will be shaken to its foundations and beyond.
It is unclear where China’s political system is now heading. The country is gripped by an anonymous article published in the state newspapers warning that the reform process faces “unimaginably fierce resistance”
Jonathan Fenby from Trusted Sources said the article is a sign that a furious President Xi Jinping is losing faith in his officials after a secret conclave of the party leadership in August. “Behind the confident front which he presents to China and the rest of the world, factionalism is still alive within the senior ranks,” he said.
… capital flight greatly complicates the picture. It comes at a time when the Shanghai composite index of stocks has dropped back to 3,507, retesting the post-crash lows of early July. There is a pervasive fear that the crisis may be deeper than admitted so far by the Communist Party. ___
It wasn’t so long ago that the “triumph of the BRICS” was being shouted from the rooftops of investment banks, financial media outlets, and other trend-ridden institutions and echo choirs.
As funds flow out, a vicious circle is triggered. Currencies tumble against the US dollar, damping demand for imports and driving down aggregate demand. In June, for example, emerging market imports were 13.2 per cent lower year-on-year, according to a moving average compiled by Capital Economics.
“The collapse in emerging market imports reflects a more fundamental drop in demand as capital outflows have forced domestic demand to shrink and lower commodity prices have eroded incomes in commodity-producing countries,” said Neil Shearing of Capital Economics. “So far, there is little sign that we have reached the bottom.” ___ http://www.afr.com/markets/currencies/emerging-markets-rocked-by-us1tn-capital-flight-as-confidence-slumps-20150818-gj2b80
This is not news to readers of Al Fin blogs and other Al Fin media outlets, which have been helping to provide the contrarian view for over 5 years now.
But devourers of skankstream news and propaganda news may have been caught a bit by surprise — and perhaps are still floating in denial.
The financial blog of China-based economist Michael Pettis is one of the most reliable sources of information on the current state of the Chinese economy.
“The growth rates for many of these countries were vastly overstated,” said Dani Rodrik, a professor at the Harvard Kennedy School of Government who has studied the impact of foreign capital flows in developing economies. “It was all very unsustainable.”
… Ricardo Adrogue, an emerging-markets-debt investor at Babson Capital in Boston, says it is the extreme declines in the currencies of Malaysia, Mexico, Russia and Turkey that worry him — not so much the Chinese devaluation.
“People are saying, ‘I want out,’ ” he said. “It is difficult to see the bottom with all these depreciating currencies.”
What Contrarians have been predicting for China the last ten years is finally coming to pass
Massive outflow of capital from emerging markets. Political instability in China, Russia, Brasil . . . Is this just the beginning of something much bigger? Stay tuned.