Fitch Ratingsthe important US risk rating agency projects a significant increase in capital flows to the emerging markets (EM) during 2024, reaching levels not seen since 2013. This improvement is expected to be driven by the reduction in rates of the United States Federal Reserve, as well as a more favorable growth differential between emerging and developed markets.
The agency uses a measure that covers foreign direct investments (FDI), portfolio equity, portfolio debt and bank flows in nine emerging markets, excluding China. After peaking net flows of $408 billion in 2007, affected by the global financial crisis, flows moderated in the last decade, remaining around $100 billion annually.
India, Brazil, Mexico and Indonesia are highlighted as investment destinations with persistent net inflows over time. Although flows were weak in 2020-2022, showing net outflows, a notable recovery is expected in 2024, according to Fitch projections.
The Fitch Ratings model predicts a reduction of Federal Reserve rates to 4.75% by the end of 2024, VIX stability and an improvement in the ME-DM growth differential. Under these conditions, a rebound in capital flows to emerging markets is anticipated, reaching 2.2% of EM9 GDP.
This would translate to around $200 billion in 2024, marking the highest level since 2013. Although the model does not currently reflect supply-side diversification away from China, it is considered that this could further boost FDI inflows into other emerging markets.
These projections suggest a more encouraging outlook for emerging markets in terms of investments, providing opportunities and potentially strengthening economic recovery in these regions.
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