Sluggish Asia falls out of investor favour
Capital flows back to the US and Europe as the emerging markets' growth story crumbles
Asia's role as the world's growth engine is waning as economies across the region weaken and investors pull out billions of dollars.
The Indian rupee fell to a record low on Monday, Thailand is in recession and Indonesia's widest current-account deficit pushed the rupiah to the lowest level since 2009. Chinese banks' bad loans are rising and economists forecast Malaysia would post its second consecutive quarter of below 5 per cent growth this week.
The clouds forming in Asia as liquidity tightens and China's slowdown curbs demand for commodities and goods are fuelling a sell-off of emerging-market stocks, reversing a flow of money into the region in favour of nascent recoveries in the United States and Europe.
Emerging markets from Brazil to Indonesia have raised borrowing costs this year to try to aid their currencies as the prospect of reduced US monetary stimulus curbs demand for assets in developing nations.
"The eye of the storm is directly above emerging markets now, two years after it hovered over Europe and four years after it hit the US," said Stephen Jen, co-founder of hedge fund SLJ Macro Partners in London and former head of foreign-exchange strategy at Morgan Stanley. "This could be serious for Asia."
Almost US$95 billion was poured into exchange-traded funds of American shares this year, while developing-nation ETFs saw withdrawals of US$8.4 billion, data showed.
Signs of a stronger United States economy may prompt the Federal Reserve to begin paring its US$85 billion in monthly bond purchases as soon as next month.