The sleepless nights endured by many developed market investors since late May have come not from underlying asset performance, but from currency depreciation in emerging markets. This has capped what has been a difficult two years.

Not for the first time, emerging markets have watched their currencies weaken in the face of a risk-averse capital flight among developed markets triggered by concerns that the US Federal Reserve would reduce it’s asset purchase scheme, which it decided against yesterday (US time).

Some countries have been targeted. Indonesia’s currency has lost 12% of its value against the US dollar since the day before outgoing Fed chairman Ben Bernanke made his tapering comments. (Although some have been resilient: South Korea has gained 2% since May 21).

Some currencies have been targeted despite strong economic and equity market performance. The Philippines – which has a current account surplus, recently saw its debt promoted to investment grade and has enjoyed 8% equity market gains to date this year – has weakened 6% against the dollar since May.

For developed market investors, weaker emerging market currencies have done far more to harm returns than the performance of asset markets themselves.

Between May 22 and September 13, a local currency investor in the MSCI Emerging Markets Index would have lost 0.7%; a dollar investor over this time would have lost 4.2% in US dollar terms.

Bond investors have done even worse by comparison. The total return from the JP Morgan GBI-EM Global Diversified Composite Index since May 22 this year is -4.8% in local currency terms and -10.0% in US dollar terms.

However, to get a real picture of how currency depreciation has hurt developed market investors, look back two years.

“The implied weighted average depreciation against the US dollar of the emerging market currencies in the equity index is 13.9%,” says John Higgins, chief markets economist at Capital Economics in London.

In other words, a US investor withdrawing on Friday, September 13 would have seen 14% of his equity returns over the last two years eaten away by the strengthening of his currency over that time.

For bonds the story is worse. Investors encashing from EM bond portfolios on the same day would have lost an average of 18.1% if they had invested two years beforehand.

Take a longer view and you can see just how bad the return of risk to emerging markets has been for dollar investors.

Dollar investors in Indonesian equities, for example, would have seen that currency gains inflated their stock market returns by 33% between November 2008 and September 2011. By the beginning of September this year, that entire profit had been eroded by an equivalent fall in the rupiah’s value against the dollar.

Developed market asset owners who allowed bond managers to talk up the return benefits of local currency bonds will be kicking themselves.