Emerging Markets securities in October attracted around $9.2 bn in money flow while China equity flows was particularly pronounced ($7.6 bn) and to a lower extent in debt flows ($1.2 bn), says analysts from the International Institute of Finance.
"We estimate that EM securities attracted around $9.2 bn in October 2022 (Exhibit 1).1 While the overall picture is positive, global recession risk is still weighing on EM flows as uncertainty builds over realized inflation and weakening aggregate demand," says the IFF.
This month the outflow from China equity flows was particularly pronounced ($7.6 bn) and to a lower extent in debt flows ($1.2 bn).
"In the weeks after Russia invaded Ukraine, we noted a possible realignment in EM capital flows away from China, even as flows to the rest of EM remained relatively robust," it says.
China in the past decade has attracted persistent and strong capital inflows at the expense of the rest of EM.
Therefore, the shift to outflows in 2022 is notable and reflects lots of discussions in the asset management community. At the time, it was an open question if outflows from China were either a short-term phenomenon or part of a more structural realignment.
Increasingly, this question is being settled in favor of the latter, with market participants looking at China in a new light. This shift reflects geopolitical concerns and anxiety that the government’s zero COVID policy could weigh on China in the medium term.
Elsewhere, EM x/China showed inflows in both equities ($9.3 bn) and debt ($8.7 bn), which helped to lift the overall EM picture greatly. Nevertheless, we believe that the continued volatility in the market (in both equities and yields) represents a risk for the outlook.
Brazil flows were in focus this past month. Since the first round Election on Oct 3, our high frequency tracking of Brazil equities has shown a cumulative net inflow from non-residents. We believe this is driven mainly by the orthodoxy of the Central Bank, the strong response to high inflation from authorities and to some extent the response from investors to cheaper equities, following the partial selloff leading up to the first-round election.
Despite the positive numbers this month, we see the appetite for local currency bonds across the EM complex still weakening, which also contributes to a weaker outlook.
Regionally, our data showed inflows across all regions except Africa & Middle East (outflow of $1.3 bn). 2 Find all data available for download on our website.