Emerging Markets Crack as $3.9 Trillion Funds Unwind: Currencies

June 20 (Bloomberg) — Investors are pulling money from emerging markets at the fastest pace in two years as slowing economic growth and the prospect of less global stimulus sink stocks, bonds and currencies from India to Brazil.

More than $19 billion left funds investing in developing-nation assets in the three weeks to June 12, the most since 2011, according to EPFR Global. Foreign investors dumped an unprecedented $5.6 billion of Brazilian stocks and $3.4 billion of Indian bonds this month, exchange data show. The tumble that has sent JPMorgan Chase & Co.’s emerging-currency index down 1.4 percent this quarter extended today as the rupee and Turkish lira hit record lows.

“These are pre-quake tremors: something big is coming,” Stephen Jen, the co-founder of hedge fund SLJ Macro Partners LLP, said in a phone interview from London on June 12. “There’s tremendous deceleration in emerging markets. You may see crisis-like price actions without having a crisis.”

 The reversal of the $3.9 trillion of cash that flowed into emerging markets the past four years has been compounded by popular protests in Turkey and Brazil challenging government policies on everything from fighting inflation to developing infrastructure. China, the largest developing economy, is forecast by the World Bank to expand at the slowest pace since 1999 this year, while current-account deficits in Indonesia, Brazil and Chile have grown to the widest in a decade.

“While cyclical opportunities will come and go, the era of structural outperformance for EM is probably over,” Dominic Wilson, the chief markets economist at New York-based Goldman Sachs Group Inc. who predicted the rise of the biggest emerging markets in 2003, wrote in a report dated yesterday.

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