Capital flows into emerging markets dropped sharply in August, according to new data from the Institute of International Finance (IIF).
The IIF reports that portfolio investments in emerging markets came in at just US$9 billion in August, after average US$38 billion per month in the previous three months. Debt inflows were particularly affected, it says.
“The dip in flows in August may mark a cyclical turning point for [emerging market] capital flows,” says Charles Collyns, the IIF’s chief economist.
“Emerging market stocks and bonds have been among the best-performing assets so far this year amid a surge of foreign portfolio investment. While the usual seasonal lull surely contributed to the weakness, the sharp slowdown in portfolio flows in August could also mark the beginning of a period of greater caution among global investors towards EMs,” Collyns notes.
The IIF reports that both equity and bond issuance slowed sharply in August. It says that August is usually a slow month, but this year bond issuance fell to $22 billion from a monthly average of $62 billion per month over the past year; and, that’s down from $44 billion last August. Equity issuance declined less severely to $42 billion, it notes.
“Looking ahead, investors need to strike a careful balance between positioning for favourable long-term prospects in EMs relative to mature markets while managing the risk of a near-term correction, related to shifts in risk appetite and uncertainty around the path of the Fed’s exit from easy money,” Collyns adds