Reuters
London

Emerging markets suffered steep losses over the third quarter of 2015, with equities losing almost a fifth of their value in the past three months and many currencies dropping to record lows against the dollar.
In the year to date, every major emerging market asset class is in the red, with losses spiralling in the July-September period.
The quarter coincided with plunging Chinese equities, clear signs of growth slowdown across the developing world and an August 11 yuan devaluation. The US Federal Reserve’s decision in September to put off raising rates convinced investors that the world economy and China were in trouble.
“Emerging markets were caught in the cross winds of negative factors everywhere,” said Ilan Solot, global head of emerging market currency strategy at Brown Brothers Harriman.
“The global scenario was negative, global equities and risk appetite off, a lot of uncertainty from major central banks and a lot of idiosyncratic country-specific factors ... and then the commodities cycle – it was like a perfect storm.”
Global investors are estimated to have sold $40bn worth of emerging market assets – evenly divided between stocks and bonds – in the three months to the end of September. That is the worst quarter since the end of 2008, according to data from the Institute of International Finance.
MSCI’s broadest emerging market index hit six-year lows on August 24, spurred by the Chinese devaluation, making it the worst quarter for the index since 2011.
China’s Shanghai index, which delighted investors with top-notch 25% returns in the first half, were the worst performers of the third quarter across all asset classes, losing 30%.
In dollar terms, only Hungarian and Russian equity returns remain positive, while MSCI Brazil is down 43%.
Losses on the EMBI Global index of dollar debt are a relatively small 0.8%, thanks to double-digit gains in Ukraine and Russia. The average yield premium carried by sovereign dollar bonds to US Treasuries widened about 100 bps in the third quarter to 480 bps
Ukraine, in the process of an investor-friendly debt swap, saw bond prices leap after reaching a deal with creditors and has returned over 50% this quarter. Bonds from crisis-hit Brazil brought up the rear, losing 12% this quarter.
Local currency debt on the GBI-EM index has fared worse, losing more than 11% this quarter and bringing 2015 losses to around 16%.
Much of this is down to the exchange rate effect. Currencies lost as much as 24%, in the case of the Brazilian real. Even the relatively resilient Indian rupee is down around 3%.
JPMorgan analysts predicted currency losses would keep weighing on local debt returns.
“Overall, we expect aggregate GBI-EM losses in dollar terms will exceed minus 14% for full-year 2015, marking the third consecutive year of negative losses and the lowest annual returns since 2010,” they told clients.