investors are dumping assets in emerging markets around the world, as donald trump <u+2019>s election victory upends a long-profitable trade. a fresh selloff rolled from asia into europe, africa and latin america as the day progressed friday. stocks ended the day down 4% in indonesia, while south africa<u+2019>s ftse jse index fell by 2.3%. argentina<u+2019>s merval index tumbled 3.5%. currencies took a beating, too. even the russian ruble, which held up in the election<u+2019>s immediate aftermath, dropped by 0.6% against the u.s. dollar. investors are expected to pour a net $157 billion into emerging markets by the end of the year, according to the institute for international finance, seeking relief from the rock-bottom yields prevailing elsewhere around the world. but mr. trump<u+2019>s election has changed that calculus. his emphasis on infrastructure spending and tax cuts has sparked a rally in u.s. stocks and sent benchmark treasury yields sharply higher. with better yields now available in developed markets and expectations that the federal reserve could have to raise key interest rates more aggressively, rather than the slow and gradual approach many analysts had been expecting, investors have a more compelling case to keep their money in the u.s. emerging market stocks and bonds suffered about $2.4 billion in outflows over the past week, with much of that cash exiting since the election, the iif said. <u+201c>higher rates in the u.s. will naturally raise the bar for capital flows to emerging markets,<u+201d> said mirza baig, head of foreign-exchange and interest-rate strategy at bnp paribas in singapore. yields on benchmark 10-year u.s. treasurys surged above 2% this week for the first time since the beginning of the year. u.s. bond markets were closed friday for veterans day. the shift could be a long-lasting one. <u+201c>the previous shallow hiking cycle is probably not going to happen,<u+201d> said mark baker, an emerging-markets portfolio manager at standard life investments in hong kong. <u+201c>i think there<u+2019>s a narrative around tighter global liquidity conditions that could become more important once again.<u+201d> in that kind of environment, investors could rethink decisions to put money into countries that are reliant on foreign capital, such as turkey and south africa, mr. baker said. the south african rand fell by more than 1% against the greenback on friday. the yield on the country<u+2019>s sovereign bond maturing in 2026 rose to 9%, its highest since early september. foreign investment can be a critical source of capital for developing countries<u+2019> infrastructure, construction and bank lending. countries including mexico, colombia and brazil are just beginning to recover from expansionary fiscal policies that widened deficits, drove up inflation, and lowered growth. many of these governments are suffering from low approval ratings as they enact painful budget cuts. capital outflows could tip an already difficult balance in the wrong direction, said daniel kerner, latin america practice head at eurasia group. <u+201c>people pulling money out will hit many emerging markets, particularly in latin america, at a very weak moment,<u+201d> mr. kerner said. in argentina, a new administration has repaired relations with foreign investors after a record breaking default in 2001. with billions of dollars flowing in, the country is working to repair everything from roads to energy infrastructure that had been neglected during its years as a pariah. foreign capital <u+201c>tends to push down market interest rates, it means banks can borrow and lend and the net effect is to stimulate activity and growth,<u+201d> said neil shearing, chief emerging markets economist at capital economics. the dollar-denominated j.p. morgan emerging-markets bond exchange-traded fund experienced its sharpest outflow on record on thursday, with $300 million exiting the fund. latin america has been particularly hard-hit, given the region<u+2019>s close trading and immigration links with the u.s. a brazilian government bond maturing in 2026 reached a yield of 5.25%, its highest since june. the brazilian real<u+2019>s 5.3% decline against the dollar thursday was the currency<u+2019>s largest daily drop in five years. the mexican peso is down more than 12% since the election. a 2.7% slump in indonesia<u+2019>s rupiah prompted intervention by the country<u+2019>s central bank. asian companies had rushed to issue bonds in dollars before an expected u.s. rate increase in december. as the u.s. dollar strengthens against their home currencies, that debt will now likely become more burdensome to repay. emerging markets are sturdier than they were during the so-called taper tantrum of 2013, when worries that the fed would pull back from its bond-buying program triggered heavy outflows. current-account deficits in india and indonesia have narrowed, for example. still, investors remain cautious given the uncertain outlook for the direction of treasurys. <u+201c>if treasury yields continue to march higher, eventually that will put pressure on emerging markets,<u+201d> said ashley perrott, head of pan-asia fixed income at ubs asset management in singapore. <u+201c>what you think is an opportunity initially might turn into regret.<u+201d> write to rachel rosenthal at rachel.rosenthal@wsj.com , mike bird at mike.bird@wsj.com and julie wernau at julie.wernau@wsj.com
donald trump win has investors selling in emerging markets - wsj
rachel rosenthal mike bird julie wernau