Emerging market portfolio flows: back in the red

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Portfolio flows to emerging markets turned negative again in November after a month of inflows in October, according to estimates by the Institute of International Finance, a financial industry association.

The IIF said there had been combined cross-border outflows from EM stocks and bonds by non-resident investors of $3.5bn last month, after inflows of $13bn in October.

November was the fourth month of outflows out of the past five, although the total for the year to date remains positive at $63.2bn, according to the IIF.

The prospect of rising interest rates in the US has weighed on portfolio flows in recent months.

The Federal Reserve’s decision not to raise rates after all at its September meeting prompted an apparent relief rally in EM assets — although many EM policymakers had called on the US central bank to get its long-awaited rate rise over with and end the uncertainty.

Firmer expectations of a rate rise this month had prompted November’s outflows, the IIF said, along with “a broader upward shift in the expected path for Fed tightening”.

It was likely that there had been outflows last month in all regions except Latin America, it added.

Despite an increasingly nasty recession in Brazil, many investors have continued to put money to work in fixed-income assets there, which offer returns in line with the central bank’s target overnight interest rate of 14.25 per cent.

Brazil’s economy is expected to contract more than 3 per cent this year. Nevertheless some analysts expect the central bank to raise interest rates again at its meeting in January, after staying on hold since September, to battle inflation running at more than 10 per cent a year.

Debt flows have held up better than equity flows, which tend to be more volatile. On a 28-day moving average, equity flows turned negative at the end of October, while debt flows remained positive until mid-November.

The IIF said final revisions to its figures for September confirmed that outflows in the third quarter had been the biggest on a quarterly basis since 2008, at the height of the global financial crisis.

So far this year inflows had averaged $5.7bn a month, well below the average of $22bn between 2010 and 2014, it added.

The IIF estimates flows to 30 emerging markets based on historical data produced by national sources in all the countries and daily or weekly data provided by central banks and exchanges in about half. Its estimates are broader than the widely followed figures provided by EPFR, a flows tracker focused on mutual funds.

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