The Strategist

Capital Is Coming Back to the Emerging Markets

03/30/2016 - 17:12

Flow of funds in the global emerging markets in March reached $ 36.8 billion, which was the highest level since June 2014, according to a report published by the Institute of International Finance (IIF).
The report of the Institute, released on Tuesday, notes that the sharp increase in inflows to emerging stocks and bonds markets is obliged to the fact that central banks proceed to hold the key rate at zero values, against which the players just have to hunt for yield.

Emerging markets now show practically no fundamental improvements of economic outlook. Given this, the March surge can be explained by the change in the investors’ behavior and lower interest rates of markets, supported by the Federal Committee’s surprisingly soft signals on Open Market.

Indicators in March exceeded that in February by $ 5.2 billion, having surpassed the monthly average of 2010-2014 to $ 22 billion. The inflow of funds, which lasted nearly a month, ended March 24.

Asian emerging markets have attracted more than $ 20.6 billion - more than half of the total EM inflows.

"Investors are returning back to the Korean stock market, which they have been hastily leaving until recently; at the same time, we documented the process of large-scale issuance of debt securities", - the report says.

Latin America showed marked inflow of $ 13.4 billion due to increased interest in Brazil from a number of countries.

Foreigners have invested more than $ 2 billion in Brazilian stocks in the hope of a possible political change. Against the background of the upcoming impeachment of Brazilian President Dilma Rousseff, Bovespa index soared by 23% over the past 30 days. 

Yet, the IIF is warning that the March situation in emerging markets may be temporary. 

In the future, everything will be much harder. Everything lately happened in the markets is a small respite, provoked by the fact that Fed officials have moved to a more peaceful tone in recent speeches.

The IMF described the bleak outlook for emerging markets this month: during the crisis, a number of developing economies may face a significant shortage of funds.

Lack of access of emerging markets to the bilateral agreements, which would help economic development in the context of the global financial crisis, is making them vulnerable to external manifestations, the IMF said.