JPMorgan, BlackRock warn contagion hitting EMs

First came the Argentine selloff. Then Turkey. And before long, assets from South Africa to Brazil and Indonesia were getting hit in a stampede of selling across emerging markets.

It’s a phenomenon that has a cadre of investors and strategists from JPMorgan Chase & Co. to BlackRock reaching for a single word: contagion.

The argument goes like this: while the asset class may offer value over the long haul, investors will sell relatively safe holdings to cover losses in more vulnerable markets or, worse, treat all emerging markets the same and sell indiscriminately. A herd mentality has taken over, meaning no matter what the relative risks and potential returns are in individual countries, investors who choose to buy run the risk of being trampled.

“We are having a confidence crisis in emerging markets, with some level of contagion being present,” said Pablo Goldberg, a money manager at BlackRock in New York. “With the shortterm currency moves, it’s hard to jump in.”

Developing-nation currencies have slid to their weakest levels since May 2017, with the Argentine peso, Turkish lira and Indian rupee among those sinking to unprecedented lows in recent days, reinforcing the view that these aren’t merely idiosyncratic episodes. Indonesia’s rupiah hit its weakest since the Asian financial crisis two decades ago.

Global trade tension, a strengthening dollar and the prospect of more U.S. interestrate increases led portfolio flows into emerging markets to slow to $2.2 billion last month from $13.7 billion in July, according to theWashington-based Institute of International Finance.

“That’s not a good story for emerging markets,” Anastasia Amoroso, a global investment strategist at JPMorgan Private Bank in New York, said on Bloomberg TV.