The Strategist

Emerging markets increase capital inflow as currencies lose volatility

05/05/2021 - 04:05

The inflow of funds to emerging markets accelerated in April: according to the International Institute of Finance (IIF), $45.5bn was raised in bonds and equities compared with $10.1bn in March.
The US Federal Reserve is increasingly pointing to a recovery of the US economy, but according to the Institute, the situation in emerging markets is now better than in 2013, when the US regulator's willingness to tighten policy caused a sharp outflow of funds.

Emerging markets attracted $45.5bn in inflows in April, IIF data showed. In March, these markets attracted only $10.1 billion. The increase in inflows was due to reduced volatility in exchange rates, and in general the state of emerging markets now is better than during the tightening of monetary policy in the United States in 2013, when there was a sharp outflow of funds, noted the IIF.

Excluding China, inflows into debt securities were $26.4bn and into equities were $0.7bn ($4.8bn and $13.5bn respectively in the PRC). Inflation is rising in many countries, and so do the required bond yields, but the real yields still remain higher than in developed countries, the institute's experts say.

At the same time, the U.S. also plans to sharply increase the volume of government bond placements to finance the $1.9 trillion economic stimulus program approved by Congress.

According to the US Ministry of Finance, in April-June the volume of borrowing will amount to $463 billion, while in February the plan was $95 billion (in the first quarter, $401bn was actually raised). In July-September, it is planned to raise $821bn.

The total volume of placements for the fiscal year (beginning on October 1) will amount to $2.28 trillion, which, however, is still less than in 2020, when $4.01 trillion was raised due to extraordinary measures to support the economy.