At the end of 2023 the emerging markets They almost closed the entire orchestra, receiving a net flow of funds from non-resident investors of about US$29 billion, leaving a positive balance for the year. It seems that the trend continues at the beginning of 2024 and according to the estimates of the Institute of International Finance (IIF), Last January, emerging market assets would have attracted a net capital flow of US$35.7 billion.
IIF monitoring shows that flows to the actions were negative, that is, there were net outflows of almost US$ 7,000 million while the capitals towards the bonuses they added net inflows of nearly US$43 billion. “Unlike previous months, the current result is attributed to a solid performance of the debt of emerging markets (excluding China), explained mainly by a strong debt issuance,” says the international banking think tank and the majors. investment funds.
From what the IIF data shows, variable income had a poor performance during January both in emerging markets excluding China and in Chinese stocks, net outflows totaled US$3.8 billion and US$3.2 billion respectively.
What happens with the debt of emerging countries?
In relation to the emerging market debtexcluding China, the entity highlights that it experienced a significant inflow during the last four months, for a total of around US$115 billion from October 2023. “Tight credit spreads and latent offshore demand have driven new debt issuance to record levels. Operations in primary markets in foreign currencies Mexico, Poland and Saudi Arabia -among others- explain the great performance of this asset class,” explains the IIF.
For IIF analysts, emerging market sovereigns are accelerating their external financing plans amid greater demand from off-shore creditors seeking to anticipate a moderate turn by the Federal Reserve (Fed). “In addition, we still see market appetite for local currency debt across the emerging market complex,” they note.
However, the Chinese case seems to continue to be the club’s ugly duckling since China’s debt continues in the midst of a capital outflow episode, losing US$4.7 billion in January.
The IIF’s expectations for the coming months
In this context, the IIF maintains the hypothesis of the evolution of flows for the next few months that emerging market currency returns will remain closely linked to the US economy; The expectation of a moderate turn by the Federal Reserve (Fed) will be the main driver of flows in the coming months.
What you see from the IIF is that investors are already positioning themselves for a rate cut, mainly benefiting the issuance of debt in emerging markets. In this sense, a concrete measure by the Fed will mean higher levels of liquidity in the market and a response in search of yield on the part of investors, which will mean greater potential flows in the coming months.
Of course they also see risk sources on the horizon, mainly related to a further escalation of geopolitical conflicts, the return of inflation spikes or a tougher Fed stance on rates could harm the IIF’s positive outlook on flows.
Broadly for January, the data shows inflows across all regions, with emerging markets Asia excluding China and emerging markets Europe leading the way, totaling around $17 billion and $7.7 billion. respectively.
Source: Ambito
