What's going on?
Data out on Thursday showed investors effectively stopped investing in emerging markets (EMs) last month, as they decided some corners of the world probably aren’t worth exploring.
What does this mean?
Foreign investors have a couple of concerns about EMs right now. For one thing, they’re worried the Omicron variant will cause a lot of damage to the regions’ recoveries – especially since they generally have low vaccination rates. And for another, they think EMs are likely to struggle to pay off their mounting debt piles, with repayments only set to get tougher as interest rates rise around the world. So it stands to reason that those investors are making a dash for the exit, with new data showing they sold more EM stocks and bonds (excluding China) in late November than they bought – the first time that’s happened since the pandemic hit.
Why should I care?
The bigger picture: Turkey plays chicken.
EMs’ currencies aren’t sitting particularly pretty either. Just look at the Turkish lira, which has lost almost half its value relative to the US dollar this year. That’s at least partly because its central bank has been cutting the country’s interest rates recently, despite the risk that it’ll keep pushing up already-high inflation. That’s not exactly good news for international investors who own stocks and bonds in Turkey: they could see all their gains evaporate when they convert them back to their native currencies.
Zooming out: Dig up, stupid.
Speaking of unnerving debt piles, Evergrande finally defaulted this week, having failed to make a crucial payment of $83 million to its bondholders on Monday. That’s left the infamous Chinese property developer – which is still more than $300 billion in debt – with two options: either raise cash by selling off some of its prized assets, or take out even more loans to make the payments. What could possibly go wrong?