Portfolio flows to emerging markets fell dramatically last Marchwhich marks a decisive break with the relatively constructive tone that characterized the beginning of the year. This is reflected by the high frequency daily data of the IIF that They estimate a net exit of US $17.1 billionbeing the first since December of last year and the largest since September 2023. All emerging assets suffered equally, since the total non -resident flows towards the shares implied a net exit of US $ 12.4 billion while those linked to the bonds suffered a negative net flow of US $ 4,800 million (in this case it is the first net exit in nine months).
For the IIF, Tariffs announced by the Trump administration were key as they introduced uncertainty: “The first two days of April saw significant departures, with investors abruptly withdrawing both shares and debt, but the flows began to stabilize on April 3, and the first days of the second week saw a remarkable rebound.”
As explained by Jonathan Fortun, an economist of the IIF, this deterioration of the flows occurred in a context of growing global uncertainty, since, although no formal announcement had been made, investors dedicated much of March to reposition themselves in anticipating the new commercial measures of the United States. “The increasingly vehement rhetoric of administration over the reciprocal tariffs indicated to the markets the imminence of a substantial change in the US trade regimealthough the details were still confusing; But at the end of the month, the position had already been adjusted in a way that reflected the growing anxiety before a possible new phase of commercial fragmentation, with the assets of emerging markets caught in the countercurrent, ”he added.
IIF monitoring shows that flows to variable income were particularly weak. China It represented most of the departure, with non -resident investors who withdrew US $ 8.9 billion in March, which reversed the modest tickets recorded in February and reflected the renewed concern about both external and internal risks.
According to the Vision of the IIF, the political measures destined to stabilize the macroeconomic context continued to comply with the expectations of investors, in addition, the country’s export profile made it a natural objective in case of a tariff climb, which caused preventive capital outputs. While, in the rest of the Variable Income Complex of emerging markets, losses were moderated slightly, but remained firmly negative.
The flows to the shares of emerging markets, excluding China, totaled an output of US $ 3,400 million, which is an improvement with respect to the strong falls recorded in the late 2024, although it continues to indicate a moderate appetite. What the IIF analysts observed, was that the feeling remained fragile in much of Asia, particularly in Korea and Taiwan, where concerns about exposure to technological trade persisted, while in the case of Latin America There was some differentiation, with some markets perceived as relatively beneficiaries of commercial reconfiguration that attracted a marginal interest, although not enough to reverse the general trend of risk aversion.
Debt: heterogeneous behavior
The situation in the field of debt was more heterogeneous. The main figures show US $ 4,800 million in net exits, but disaggregation reveals some important nuances: China’s debt flows were significantly deteriorated, with net sales of US $ 6.7 billion, which extended a tendency of weakness of several months; Outside China, debt flows remained slightly positive at US $ 1,900 million, although this represented a significant deceleration with respect to the rhythm of US $ 40,000 million observed both in January and February. “This moderation reflects a series of overlapping dynamics: the yields of the US Treasury bonds rose slightly throughout the month, which reflects both the firmer inflation data and a general revaluation of the expectations of the Federal Reserve (Fed),” explains the IIF.
So, the consequent hardening of US financial conditions negatively affected the total profitability of the debt of emerging markets, particularly the instruments in local currency. Thus, the differential credit of emerging markets began to expand, although from tight levels, and the models indicate that market valuations had remained adjusted in relation to the foundations for some time. Investors became more selective in their assignments, and the activity of new emissions was moderated towards the end of the month, ”says Fortun.
Anyway, the IIF considers that, from a structural perspective, the underlying attractiveness of the debt of emerging markets remains intact: high real yields, favorable technical characteristics and the improvement of fiscal profiles of some large issuers continue to promote this kind of asset. “However, March made it clear that the mattress provided by the” Carry “is not enough to compensate all external stress sources. As the dollar strengthened and the volatility indicators rose, the appetite for the risk vanished.” Therefore, the low performance of local interest rates of emerging markets compared to other fixed income segments illustrates the asymmetry of the global revaluation when political uncertainty intensifies. The positioning, which had been increasingly concentrated on high -performance values and long -term local curves, began to crumble, which contributed to the weakness observed in capital flows.
Latin America, with greater resilience
At the regional level, differentiation remains important. Latin America remains the most resilient region, both in variable income and in debt, benefiting from real relatively high interest rates and exposure to hard raw materials. Brazil and Mexico continue to attract the attention of fixed income markets, while Andean credits have stabilized after a period of volatility. Instead, Asia remains more vulnerable to macroeconomic and commercial policy. The exchange pressures in India and Indonesia rebounded at the end of March, while the capital exits of northern Asia persisted. Central Europe presents a more heterogeneous panorama, with some markets benefiting from the improvement of growth repercussions in the euro zone, but flows in general remain moderate.
In the face of what is coming, the IIF believes that markets could have partially discounted the structural change in advance, although trust remains shy; But with high global interest rates and persistent political uncertainty, the appetite is likely to remain limited, providing greater differentiation between emerging emerging concentrating more and more on markets that offer both performance and macroeconomic stability.
Source: Ambito
