The Strategist

IIF: Capital outflows return to emerging markets

02/05/2019 - 04:00

The total net outflow of investments from emerging markets in 2018 amounted to $ 23 billion, the Washington Institute of International Finance calculated. In 2017, on the contrary, there was an inflow of $ 63 billion. Only in December last year, $ 26 billion leaked from emerging markets. This outflow was mainly formed by China ($ 37 billion), while the other markets of this group, on the contrary, experienced an inflow of $ 11 billion. Recall that in the third quarter of 2017, emerging markets recorded the first net outflow of funds - minus $ 21 billion counting from the end of 2016.


Amid a trade dispute with the United States and a slowdown in economic growth, the withdrawal of funds from China has intensified within the year. In the fourth quarter of 2018, $ 101 billion flowed out of the country compared to $ 24.5 billion in July — September. Since there was an inflow of $ 81 billion in the first half of the year, the figure for the whole year was minus $ 44.4 billion (minus $ 73.3 billion in 2017, and minus $ 646 billion in 2016). The forecast for this year is an inflow of $ 174.5 billion.

Larger than China’s, outflows were observed only in the Russian Federation (minus $ 67.8 billion), Saudi Arabia (minus $ 75.1 billion) and South Korea (minus $ 57.6 billion). In the first half of the year, Russia lost $ 17.3 billion, in the third quarter - $ 22.8 billion, in the fourth - $ 27.7 billion. The IIF forecast for this year is minus $ 71 billion. Note that Argentina and Turkey, faced with a sharp weakening national currency last year, according to its results recorded an inflow of $ 42 billion and $ 15.1 billion, respectively.

Since the beginning of the year, sentiments regarding emerging markets have improved, including due to the softer tone of the Fed, the institute said. Recall that at the last meeting, the regulator indicated that “it will be patient” in assessing what actions should be taken, and refused to send the message that “a certain increase in interest rates will correspond to an improvement in the economy.”

In January of 2019, portfolio investment flows to emerging markets turned out to be a record for the last 12 months, reaching $ 51.1 billion. At the same time, $ 33 billion were invested in debt instruments (against $ 5.4 billion in December), and $ 18 billion in stock markets (of which $ 9.2 billion went to China). In addition to China, investor interest has also increased in Mexico and Indonesia, the IIF said.