In this framework, Emerging without including China suffered the worst part of the Variable Income Exitsince investors withdrew US $ 11,500 million, while China stood out with modest tickets of US $ 2,000 million. “This divergence underlines The continuous preference of investors due to the relative stability of fixed income instruments in the middle of the persistent geopolitical uncertaintythe risks of American monetary policy and winds against the world economy, ”explains Jonathan Fortun, IIF economist.
The monitoring of capital flows to the emerging shows that the tickets to the shares continued to face winds againstsince this kind of asset remained under pressure, which reflects the continuous weakness of the feeling of global risk, according to the analyst’s vision. In this regard, it emphasizes that The liquidation of American technological actions has further exacerbated capital outflows of emerging markets.
“The correlation between the credit differentials of emerging markets and American technological actions has been significantly strengthened in recent yearswith a 91.2% correlation among credit differentials from emerging markets in general and NASDAQ 100, ”he explains.
So that the marked correction of American technological actions has increased risk aversion among global investors, which has led to A retirement of emerging market shares. The consequences have been particularly evident in Asia, where markets remain vulnerable to uncertainty about US commercial policy.
There is no doubt that the new protectionist measures of the Trump administration, in particular The imposition of tariffs on a series of sectors have further weighed on the feeling of investors.
“The impact has been more visible on India, where Foreign investors have cut allocations in more than US $20 billion since Octoberciting the deceleration of the growth of the profits, the high valuations and the increase in the stress of the financial sector. South Korea and Taiwan also faced exits from more than US $ 1,000 million of each, reflecting concerns about possible semiconductor exports tariffs. ”
However, China opposed the trend with net capital ticketssince the renewed interest of investors in their technological sector, promoted by artificial intelligence (AI) and semiconductor developments, provided a counterweight to the broader weakness of the variable income of emerging markets, warns the IIF.
Emerging debt markets record tickets for US $ 45,000 million
Despite the weakness of the shares, the debt markets of the emerging markets remained a remarkable point: in January, There were total debt tickets of US $ 45,000 millionof which ex -China emerging markets attracted US $ 36.8 billion and China added US $ 8.100 million.
“The resilience of the local debt of emerging markets was particularly notable, backed by the continuous foreign demand for bonds in Brazil, India and Poland.”
Besides, Many central banks of emerging markets have maintained relatively high policy interest rateseven when global markets anticipate a prolonged period of aggressive posture of the Federal Reserve (FED), which makes it The debt of emerging markets is an attractive “carry trade” operation.
According to Fortun, the performance of local government bonds of emerging markets remained solid in January, and the general rates that these markets follow recorded a performance of 2.8%. The profits were backed by a high “Carry”, the improvement of fiscal conditions in selected economies and the continuous demand for local currency debt by investors despite exchange risks.
For the IIF, the attractiveness of these bonds reflects a combination of high yields and relative stability compared to another kind of assetswhich reinforces the attractiveness of fixed income instruments in emerging market portfolios. “Investors have become more demanding and prefer countries with stable macroeconomic foundations, while avoiding those who present higher tax vulnerabilities.”
Brazil and Mexico attract debt tickets
Therefore, a key issue that arises from January flows is the growing differentiation between emerging markets: as world financial conditions harden and increase geopolitical risks, Investors are assigning capital more selectively where Mexico and Brazil have continued to attract solid debt entries, supported by stable macroeconomic policies and high real interest rates.
On the other hand, nations with weakest tax positions or greater political risk, such as South Africa and Türkiye, have seen more volatile flows. “The need for those responsible for emerging market policies maintaining credibility in monetary and fiscal policy is becoming even more pressing to sustain investors’ confidence,” says Fortun, something that surely knows the economic team led by Luis Caputo and President Milei.
What news could impact the market
With respect to what is coming, it is unavoidable that the growing probability that The Fed maintains the highest interest rates for a longer time influences the prospects for emerging markets. The recent US inflation data were stronger than expected, underlying inflation remains solid and the resilience of the US labor market is reinforcing the expectations that Fed can delay any rate cut.
Something already hinted at the president of the Fed, Jerome Powell, which led the markets to recalibrate expectations towards fewer feats in 2025.
Therefore, A longer period of high American rates raises significant challenges for emerging marketssince it strengthens the dollar, increases external financing costs and reduces the attractiveness of emerging market assets in relation to US fixed income. If so, many central banks of emerging markets can face renewed pressure to maintain or even increase rates to defend their coins, which complicates internal economic conditions.
“Although January data reflect resilience in emerging market debt markets, the most general prospects remain uncertain. The combination of policy changes in the US, geopolitical events and global monetary conditions suggests that volatility will persist. The differentiation in the emerging market complex will probably be deepened, and capital will increasingly flow to countries that demonstrate macroeconomic stability and policy coherence, ”says the IIF.
Source: Ambito
