The Strategist

Emerging markets show net outflow for the first time since 2016

11/07/2018 - 11:28

In the third quarter, developing markets recorded the first net outflow of funds since the end of 2016 - minus $ 21 billion (including $ 44 billion in September, while in August there was an inflow of $ 11 billion), the Washington Institute of International Finance (IIF) counted. The reasons for the trend change are trade differences between the US and China, the decline in the growth rate of the Chinese economy (in July-September they slowed down to 6.5% in annual terms), as well as the problems of Turkey and Argentina.

Public Domain Pictures
Public Domain Pictures
In October, there was a record reduction in portfolio investments in the stock markets of developing countries - by $ 17.1 billion. This is the worst result since June 2013, when the Fed first announced plans to tighten monetary policy. Investments in bonds against the background of growth in profitability, on the contrary, have increased over the month by $ 9.5 billion, and this is evidence of a renewed interest in the debt of developing countries, the IIF notes. The total outflow from the stock and bond markets amounted to $ 7.6 billion against an inflow of $ 9.8 billion in September.

Most of the outflow occurred in China. For investment in stocks, it was a record since 2015, when investors began to massively withdraw funds from the country on fears of the weaker renminbi. The inflow into bonds partly compensated for this decline, but the rates on two-year government bonds in China, for example, are already lower than the US. The net capital outflow from China in September exceeded $ 13 billion as investors once again began to fear a fall in the national currency of this country. In the quarter as a whole, the balance remained positive - $ 11 billion, but it sharply declined compared to April — June, when $ 60 billion leaked to the Chinese market ($ 130 billion in total from the beginning of the year). For the first time since January 2017, the Central Bank of the country spent about $ 4 billion in foreign exchange interventions to support the national currency, the IIF estimated, expecting that the authorities will continue to apply incentive measures in the future.

Excluding China, net capital outflows from developing countries in September accelerated to $ 30 billion. Excluding $ 10 billion in August, a total of three quarters of inflows amounted to $ 25 billion, which is 75% less than in 2017. The largest decline in investments in September was noted in Russia (minus $ 10.6 billion, from the beginning of the year - minus $ 39.7 billion), with comparable volumes also flowed from Saudi Arabia and South Korea.