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‘Trade-war jitters’ spark year's largest exodus from emerging markets ETFs

A surge in ETF withdrawals is starting to undermine the view that the emerging market sell-off is largely limited to the weakest economies.

Outflows from U.S.-listed ETFs that invest across developing nations as well as those that target specific countries totaled $2.7 billion in the week ending on June 15, the most in over a year and more than seven times the previous week, according to data compiled by Bloomberg. Asian markets, considered a relative haven amid the turmoil, bore the brunt of the retreat.

South Korea is among the six-worst emerging currencies this month.
Foreign currency dealers work in a dealing room of KEB Hana Bank in Seoul, South Korea, on Monday, Sept. 4, 2017. Asian stocks fell as investors turned to haven assets after the dictatorship tested a nuclear bomb on Sunday, sending the yen, gold and Treasury futures higher. Photographer: SeongJoon Cho/Bloomberg

Investors have been dumping emerging-market assets amid an escalation in trade tension and concern that the world’s biggest central banks including the Federal Reserve will tighten monetary policy.

Even countries with solid prospects for growth and debt financing haven’t been immune to the selloff. South Korea and Thailand, which have current-account surpluses, are among the six-worst emerging currencies this month.

Trump’s call for tariffs on steel and aluminum imports, and subsequent worries of a trade war, have recently taken a toll on emerging markets investments.
March 7

“The statistics itself reflect worries about emerging markets in terms of the growth outlook, in terms of what the Fed tightening means,” said Sim Moh Siong, a currency strategist at Bank of Singapore. “We’re starting to see a blurring of the differentiation between current-account deficit currencies and current-account surplus currencies. That reflects the worries about trade-war jitters.”

Bloomberg News