DOHA: After one of the worst performing months for Emerging Market (EM) portfolio flows, with a net outflow of $13.9bn, it is estimated that EM securities attracted $37.7bn in September. This recovery in non-resident portfolio flows highlights the pendular nature of flows during 2019, Institute of International Finance (IIF) noted yesterday.
The increase in US-China trade tensions in May caused a rapid deterioration in global risk appetite, resulting in an important outflow episode. While sentiment improved in June, a re-escalation of the trade conflict in August caused another outflow episode.
Potential triggers for further risk-off episodes proliferate, including further increases in trade tensions. Unlike August, when IIF’s daily flows tracker recorded 18 out of 21 days of negative flows, the September tracker showed only 6 out of 21 days of negative flows. China equity flows were $9.2bn during September, a substantial improvement from the August result of only $1.6 bn. Debt inflows were $27.6bn in September, signaling a clear return of confidence in EM debt securities.
Despite the upbeat sentiment, EM x/China equity flows ended at $1.1bn. IIF believes the outlook for equity 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 positive outcome was uniform across all regions. Debt flows in EM Asia were $13.3bn, followed by Latam ($6.3bn), EM Europe ($4.0bn) and AFME ($3.9bn). Regarding equity flows, EM Asia saw an inflow of $9.0bn (explained mainly by $9.0bn of inflows to China), with the other regions seeing only marginal gains. IIF estimates its broader measure of net capital flows to EM, including banking and FDI flows, was $30.9bn in August, a sharp improvement from last month.
Source from: The Peninsula