The Strategist

Emerging markets lose the largest investment amount since 2005

08/01/2022 - 15:19

Foreign investors have withdrawn a record amount of money from developing markets amid rising chances of a global crisis. Experts believe that money leaving these economies could make the financial situation there worse.
According to the Financial Times, which cited the Institute of International Finance, foreign investors sold $ 38 billion worth of shares and bonds in emerging nations over the previous five months. The article states that the volume of outflows set a new record since 2005.

The newspaper reports that investors are pulling out of emerging countries due to concerns about a global economic slump, rising interest rates, and recession. At the same time, the growing financial crisis there may be made worse by the outflow of cash. Sri Lanka has been in arrears on its sovereign debt for the previous three months, while Bangladesh and Pakistan have requested assistance from the IMF. Investors worry that numerous other foreign issuers could also be in danger.

Additionally, $30 billion from emerging-country currency bonds in investor withdrawals were noted in 2022. At least 20 frontier and emerging markets are trading currency bonds with yields over 10% higher than those of US bonds. According to the FT, such wide margins are sometimes viewed as a sign of extreme financial stress and default danger.