“The trade war has sunk emerging markets. There's more to come.” —Welcome to the new narrative on EM. May has been a bad month for EM bonds, equities and currencies — and it could get worse as stalled US-China trade talks prolong uncertainty in the market.

Off the proverbial cliff? EM equities and bonds seemed as recently as April to be on track, but the MSCI EM equities index plummeted 3.7% last week, erasing most of its year-to-date gains, according to Bloomberg. The MSCI EM currency index fell nearly 1% last week, its fifth consecutive week of decline, the Financial Times writes. EM bond funds saw their largest outflows since June 2018 in the week leading up to 15 May, with active funds seeing outflows for the first time since February. Meanwhile, overall inflows into EM bond and equity funds declined by around USD 5 bn, according to Barclays. May has for the past decade been bad for EM outflows, but May 2019 is on track to be the worst since 2012 for stocks and since 2016 for currencies.

It ain’t over yet: EM are vulnerable to global market volatility, with equities left “hanging in the balance of the global risk environment,” say Goldman Sachs strategists Caesar Maasry and Ron Gray. Even leaving aside trade tensions, analysts have highlighted the recent failure of EM currencies to perform and the lack of aggregate growth. And Brendan McKenna, currency strategist at Wells Fargo, says we haven’t seen the end of it yet. “There is more volatility to come. There aren’t a whole lot of things that can support EM right now.”