Strong capital inflow to emerging markets: Will Argentina be able to take advantage of it?

Capital flows by non-resident investors towards the assets of the emerging markets They remain very strong and we would have to go back several years to see records like those shown in the first two months of the year. The latest data collected by the IIF indicate that in February the emerging markets They attracted around US$22.2 billion. So, added to the more than US$35.7 billion calculated last January, the first two months would yield a net flow of US$57.9 billion.

It cannot be ignored that this is the fourth consecutive month of general capital inflows throughout the emerging market complex, according to IIF monitoring, but in addition, February marks the first time Chinese stocks showed an inflow of capital after six months of continuous outflows.

Without a doubt, the performance of the variable income was very positive during February, gaining ground both on the side of emerging market stocks excluding China as well as those of China with net income of $7.6 billion and $9.6 billion, respectively. That is why the IIF highlights that the most important thing is that they see Chinese stocks ending a six-month episode of capital outflows that represented around $24.4 billion in outflows since August 2023.

For February, data shows significant capital inflows into emerging markets in Asia, totaling around $19.5 billion, while other geographic regions posted negligible gains.

What other information can be extracted from the February survey? Thus, at a global level, portfolio flows to emerging markets amounted to US$22.2 billion, of which those linked to the variable income amounted to US$17.2 billion while those that were oriented towards fixed rent They were US$5,000 million.

In addition to chaining the fourth consecutive month of net flows to all emerging markets and for the first time Chinese stocks received a positive net flow since last August, unlike January of this year, the debt of emerging markets, excluding China, has experienced weaker but still positive flows, totaling around US$11.5 billion.

This is explained by narrow credit spreads and latent offshore demand that drove new debt issuance to record levels. “We still see market appetite for local currency debt across the emerging market complex”, points out the IIF. However, Chinese debt remains in the midst of an episode of outflows that meant negative net flows of $6.5 billion in February, making this the second consecutive month of debt outflows from China.

What the IIF is further seeing is that China’s stock rotation will likely continue to grow, especially if the stimulus policies emerging from the annual meeting of the National People’s Congress meet market expectations. “We see that the scarring effect of the pandemic is beginning to diminish in the Chinese stock market, while important real estate reforms take shape and there are important purchases directed by the State,” they explain from the international banking think tank.

Flows to emerging countries: future and Argentine positioning

As for the future perspectives, the IIF maintains the hypothesis of the evolution of flows for the coming months where the yields of emerging market currencies will continue to be closely linked to the US economy. “While we see more ambiguity in the dovish turn of the Federal Reserve (Fed), we see that Investors are already positioning themselves for a rate cut. This shift should mainly benefit emerging market debt issuance,” they explain.

It is not a minor fact for the libertarian Government in its eagerness to once again obtain genuine financing in the international capital markets, as long as its homework is done, political and governability uncertainty is reduced and the adjustment has signs of sustainability. . Otherwise they will only be swallow and speculative capitals, carry tradewhich will be seen beyond some bets on bonds and stocks.

However, a large risk remains to the outlook, mainly related to higher escalation of geopolitical conflictshe return of inflation peaks (mainly due to supply chain limitations) and a Fed’s tougher stance.