Currency Crises Spreading to Emerging Markets

Emerging market assets are headed for a monthly loss as declines in Argentina and Turkey sparked fears of global contagion and amid a renewed intensification of US-China trade tensions.

The MSCI EM index of currencies was down 2.2% for August in London, poised for a fifth monthly loss, the longest stretch since September 2015. South Africa’s rand headed for its worst August on record, while the lira rebounded on Friday after Turkey raised taxes on dollar deposits. In Asia, the Indonesian rupiah slid to its lowest since 1998, while the Indian rupee was set for its biggest monthly drop in three years and a fresh record low, Bloomberg reported.

Plenty of investors—including BlackRock Inc. and Pacific Investment Management Co.—have viewed emerging-market declines as an opportunity to stock up on securities likely to benefit from growth rates set to outpace those of the rich world in the long run. But that’s not panned out this month, with developed-nation equities comparing favorably thanks in part to solid corporate earnings.

The latest currency crisis in Argentina adds to existing headwinds for emerging markets including the end of an era of cheap money, prospects of a global trade war, American sanctions and deep political uncertainties in places such as Brazil.

The rupiah fell to 14,750 per dollar, the weakest level since the 1998 Asian financial crisis, while the Indian currency slid past an unprecedented 71 against the dollar.

Asia needs to “guard against complacency” especially for those with deficits in their fiscal and current-account balances, strategists including Philip Wee at DBS Group Holdings Ltd. wrote in a note. “With heightened trade tensions (between US and China) threatening to erupt into a full-blown trade war, the region is on alert for disorderly capital outflows.”