NEW YORK (TheStreet) --China's stock-market gyrations and the deepening of a recession in Brazil led investors to yank $6.5 billion from emerging-market exchange-traded funds during the third quarter, according to

The Vanguard FTSE Emerging Markets (VWO) - Get Report  and iShares MSCI Emerging Markets (EEM) - Get Report  funds were the biggest losers, even as investors poured a net $44 billion into all U.S.-listed ETFs, reported last week. The Vanguard fund's assets fell by $3.62 billion to $34.9 billion, while the iShares fund's assets declined $2.9 billion to $21.3 billion. 

Investors are retreating from bets they made earlier this decade that emerging-market assets would provide a superior alternative as near-zero interest rates in the U.S. and Europe depressed returns from developed countries. In August, international investors redeemed $1.9 billion overall from emerging-market funds of all types, with $1.5 billion of that coming from China alone, according to a separate report from Bank of America (BAC) - Get Report Merrill Lynch. 

"It's just following the script, and we're seeing flight from emerging-market equities," said John-Paul Smith, a former Deutsche Bank strategist who now runs the independent emerging-market research firm Ecstrat, based in London. "In the long term and medium term, the outlook is still fairly dismal."

Shares of the Vanguard EM ETF have tumbled 13% this year, more than twice the drop of the Standard & Poor's 500

Total net capital invested into emerging markets probably will probably fall by $540 billion this year, the first year of outflows since 1988, the Institute of International Finance said in a report. The group projected further outflows of $306 billion for 2016. 

Global investors are estimated to have sold $40 billion of emerging-market assets of all types during the third quarter, the most since late 2008, when the collapse of Lehman Brothers triggered a financial crisis, according to the institute. One factor was a dropoff in new stock and bond sales from developing countries, the group said. 

While the Federal Reserve's decision not to raise rates in September provided a boost to higher-yielding assets from emerging markets, the impact was short-lived, with asset outflows resuming later in the month, according to the report. 

In China, corporate indicators are still negative, and the politics and economy in Brazil are just getting worse, Smith said. 

"There's no sign of any kind of secular turning point whatsoever," he said. 

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