The survey shows that flows towards emerging stocks yielded a net of -US$21.5 billion, while those oriented towards bonds yielded a positive balance of US$6.0 billion. Of course, there is always an explanation, or at least, a serious argument to understand what happened compared to market expectations. In this case the “culprit” would have been China.
“The poor performance of flows is mainly explained by large capital outflows into stocks, especially in China.”points out the IIF.
According to data from the international banking think tank, Chinese stocks have suffered an outflow of around $15 billion, marking the largest monthly outflow on record for Chinese stocks, highlighting the negative sentiment about the economic challenges of the country, amid skepticism about the measures to stop the economic slowdown,” explains Jonathan Fortun, economist at the IIF.
Likewise, Chinese debt securities have also suffered capital outflows worth US$5.1 billion, confirming certain market sentiment as warned by the IIF. In reality, it should not be so surprising since the recent performance of the Asian giant chaired by Xi Jinging injected doubts into the market about its growth rate in the coming years, and to this were added the scandals and defaults in the real estate market and the construction sector. the construction.
But the consensus continued to bet on the good prospects of emerging markets, especially once the process of raising interest rates seemed to have ended. Hence the surprise and mainly due to the magnitude of the leak. But not only China suffered, since the stocks of the rest of the emerging countries also show capital outflows during August, which correlates with the dynamics of the stock market in general in developed economies.
“However, we believe that a stronger outlook for the US economy along with faster-than-expected disinflation will benefit these figures in the short term,” the IIF ventures.
In the case of flows into emerging market bonds excluding China, IIF data show an inflow of around US$11 billion. “Declining monetary volatility increases the attractiveness of overseas investments and is encouraging foreign creditors to benefit from local yield curves in emerging markets, making debt assets more attractive to investors.” foreigners,” explains the IIF.
In good romance, there is a great incentive to take advantage of the carry trade, taking funds at a low rate and placing them in emerging markets. Furthermore, debt securities are also benefiting from increasing local currency debt inflows. No small fact for Argentina, which at some point will aspire to once again seduce these sources of financing.
Now, it has already been made explicit that it was not only China that suffered and in this regard the IIF reports that for August its data shows capital outflows in all of the emerging complex, being the emerging markets of Asia (excluding China), Latin America, Africa and the East. Half those that suffered the greatest impact, around US$5,000 million each.
Regarding the outlook, the IIF points out that “despite the impact of capital outflows from China, we maintain our positive outlook for emerging markets as a whole” and adds that “the credit outlook should continue to improve as the the soft landing of the US economy becomes more evident, inflation decreases and the geopolitical climate becomes more favorable to the market.”
It is worth remembering that the first half of the year had been very good for emerging countries, a trend that continued in July with the sustained recovery of the flow of capital into the assets of these countries of more than US$32.8 billion. Until that moment, the accumulated net portfolio flows to emerging markets in the first seven months of the year exceeded US$164 billion.