Emerging markets were rarely this bad in August

Argentina imploded. Beijing let the yuan slip to the lowest in at least a decade. Global central banks signaled they’re spooked about slowing growth by rushing to cut rates. By almost any measure, August was a month to forget for emerging-market investors.

Consider the following: Developing-nation currencies had their worst August in at least 22 years, puncturing a carry trade bet that had just begun to turn positive. Investors yanked so much cash from exchange-traded funds that flows are poised to turn negative for the year. On top of that, dollar-bond sales fell to a 42-month low.

Malcolm Dorson, who helps manage $640 million of emerging-market funds at Mirae Asset Global Investments in New York, says it’s a good thing he took time off with his family earlier in the summer.


“The stress on currencies and price movements kept managers on their screens,” he said. Investors have “to be on the ball either to take advantage or re-position, all while staying in front of your investors. I’m sure many trips were canceled or postponed.”

All told, emerging-market stocks erased $873 billion in market value in August as the US-China trade war rattled on. Bears tripled the money on bets that developing-nation equities will see further declines, handing the iShares MSCI Emerging Markets Exchange Traded Fund its biggest-ever surge in short interest.

“September will be more of the same,” said Brendan McKenna, a foreign-exchange strategist at Wells Fargo Securities LLC in New York. “Even though China laid out their retaliation plans, it wouldn’t surprise me if they got even more aggressive with countermeasures.”

The month’s travails actually started on the last day of July, when the Federal Reserve cut interest rates for the first time in more than a decade. In itself, that was no surprise — yet riskier assets slid and the dollar rallied as Chair Jay Powell downplayed hope the move marked the start of a sustained easing cycle. Developing-world currencies, on a mostly upward slope since May, crumbled since then and are now hovering at their lowest since November.