Emerging Markets Hit Hard as Global Rout Continues – by Raymond Zhong, Andrey Ostroukh and Patrick McGroarty (Wall Street Journal – August 24, 2015)

http://www.wsj.com/

Growing anxieties about China cause investors to pull money from developing markets

New Delhi, Moscow, Johannesburg – Bad news from China has sparked a firestorm in the developing countries that feed its vast industrial machine, leaving a swath of economies with few good ways to escape a crunch.

In Indonesia, coal once bound for China is piled up in port. In South Africa, mines that fed China’s voracious demand for metals are firing workers. In financial markets, investors have responded by pulling out.

On Monday, the currencies of Russia, Indonesia, South Africa, Brazil and other commodity exporters tumbled to multiyear lows against the U.S. dollar. Stock indexes collapsed.

The Russian ruble hit a seven-month low Monday, and by the end of the main trading session in Moscow it slid to its weakest-ever closing level of 70.9 to the dollar. A year ago, a dollar bought only around 36 rubles.

The weak currencies present a glum dilemma: Raise rates to defend them, and the economy takes a hit from tighter credit. Let them fall, and inflation erodes household budgets.

“We were all fully aware emerging markets were vulnerable,” said Malcolm Charles, a portfolio manager at Investec Asset Management in Cape Town, which has $120 billion under management. Now, he said, “I can only see red on my screen. There’s a complete pricing-out of risk assets.”

The blowout in Russia is emblematic of the fragility of economies relying on high raw materials prices supported by China’s long-sturdy demand—and of the tight constraints faced by those countries’ policy makers.

Chinese woes helped trigger a plunge in the price of Russia’s principal export and main source of foreign-currency income, crude oil. That, in turn, has pummeled the ruble.

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