Cash has flown out of emerging markets in part because developed economies have reversed years of rock-bottom interest rates to try to contain inflation. Russia’s invasion of Ukraine in February caused food and energy prices to spike. Commodity exporters, many in emerging markets, reaped revenue and attracted investment, and rising payments also offset dollar strength, though only for a while.
“Most of the recent dynamics in flows can be attributed to the dollarIIF economist Jonathan Fortun said in a statement, noting that after a series of interest rate hikes, the US Federal Reserve may be approaching a “neutral” rate. Reaching it and achieving some stability in interest rates by the Fed could help curb outflows.
But on Tuesday a trio of Fed officials from across the spectrum said they and their colleagues remained “completely united” in raising interest rates to a level that would more significantly curb economic activity and dent local inflation, which It is at its highest level since 1980.
“For the coming months, several factors will influence the dynamics of the flows”, Fortune said. “Among these (are) the timing of peak inflation and the outlook for the Chinese economy.”
July saw inflows of $2.5 billion into non-China emerging market equity portfolios, the first month of inflows since February, while non-China emerging market debt saw outflows of $6 billion. China saw a net outflow of $6.4 billion, with $2.9 billion coming out of debt portfolios and $3.5 billion coming out of equities.
Source: Ambito
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