Investors pull $13.8bn from emerging market securities in August
The Institute of international Finance said August represents the worst performing month since November 2016 as investors pulled $13.8 billion from emerging market securities in the month.
According to the Institute, EM stocks and bonds suffered the worst outflows since November-2016. After a relative positive performance in July with inflows of $24.3 billion, we estimate that investors pulled out $13.8 billion from EM securities in August.
It said the resurgence of the trade conflict; combined with increased fears of a global slowdown have been catalysts for the ongoing EM portfolio reversal.
It observed that unlike previous outflow cycles, where the dynamics between debt and equity flows were clearly different, August saw both equity and debt securities experience large outflows.
“Our daily flows tracker shows 18 out of 21 days with negative flows in August. While China equity flows gained $1.5 billion, fears of a global recession and the trade conflict translated into an outflow for EM x/China equities of $15.6 billion.
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The institute also added that debt inflows were only $0.3 billion in August, signaling a clear weakness in debt flows, which were previously supporting the overall picture.
“We believe the outlook for flows to non-China EM remains difficult, given the large amount of hot money that has already gone to EM in recent years, which we see as having resulted in a positioning overhang, a structural drag on new inflows.
“The negative outcome was uniform across all regions. Equity flows in EM Asia were negative $7.6 billion, followed by Latam (-$3.9bn), AFME (-$1.9bn) and EM Europe (-$0.6bn)”, the Institute stated.
Regarding debt flows, AFME suffered an outflow of $-1.9 billion with marginal positive flows in EM Asia, EM Europe and Latam ($1.6 billion, $0.3 billion and $0.2 billion, respectively).
“We estimate our broader measure of net capital flows to EM including banking and Foreign Direct Investment flows was $5.2 billion in July, a sharp improvement from last month, which saw net outflows of $42.0 billion.
“The reversal was driven in part by EM x/China, which flipped from a net outflow of around $8 billion in June to a net inflow of nearly $15 billon, as well as from a smaller net outflow from China. However, Russia is the notable exception from this trend, going from net inflows to net outflows”, IIF noted.
Investors pull $13.8bn from emerging market securities in August
