The large mutual funds that helped fuel rapid growth in developing countries have begun hastily retreating from those investments, contributing to the recent sharp decline in global markets.
The currency devaluation increased concerns that growth in China was slowing and that other countries might follow with their own devaluations. The notion unnerved bond investors, who began to retreat out of fear they would not be repaid. General uneasiness about a global economic slowdown spread to stocks, which many have believed to be overvalued and due for a decline.
The selling spree has raised concerns among regulators and economists about a broader contagion that could make it difficult for individual investors to withdraw money from their mutual funds
In January, economists at the Bank for International Settlements, or B.I.S., a clearinghouse for global central banks, published a study that highlighted how fast dollar-based lending to companies and countries outside the United States had increased since the financial crisis — doubling to over $9 trillion.
What struck the authors most was that this growth was coming not from global banks but from American mutual funds buying the bonds of emerging-market issuers.
Brazil, China, Malaysia, Russia, Turkey and others have sold more than $2 trillion in bonds, mostly to American mutual fund companies, since 2009. As this money flowed into their countries, financing skyscrapers in Istanbul and oil exploration in Brazil, economies and currencies strengthened.
Now the reverse is occurring, led by a slowing Chinese economy, and as that money heads for safety, local currencies are plunging.
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