Capital flows to Emerging Markets (EMs) in May 2019 shed a whopping 115 percent on renewed trade tensions between the world’s two biggest economies, United States and China.
According to the Washington-based International Institute of Finance (IIF), EMs suffered a capital outflow of $5.7 billion in the fifth month of the year, compared with inflows worth $32.6 billion and $38 billion in March and April respectively.
Equity outflows reached $14.6 billion in May, sparked by mounting US-China trade spat, making the month the worst for EM equity flows since the June 2013 Taper Tantrum, which saw equity outflows escalate to $22 billion.
The $14.6 billion equity outflows comprised $7.2 billion and $7.4 billion from Chinese and Non-Chinese equities respectively.
United States and China since July 2018 have been engaged in a trade war involving mutual placement of tariffs.
United States’ President, Donald Trump, exercised authority granted by Congress in the Trade Act of 1974 to impose $250 billion tariff on Chinese goods after the United States Trade Representative Office felt that Chinese trade practices disfavours US Exports.
In retaliation, the Chinese imposed tariffs on U.S products of similar value, thereby launching the biggest trade war, which has wreaked havoc on emerging economies.
There is a clear distinction between the dynamics of debt and equity flows to the region in the review month. Debt flows worth $9 billion was received by the region in May, compared with equity outflows of $14.6 billion.
Debt inflows to EM space contracted substantially in the review month from $24.2 billion in the preceding month, with the level of debt flows driven by inflows to EM Asia ($4.9bn), EM Latin America ($2.1bn) and EM Europe ($1.2bn).
The headwinds of trade spat between United States and China seems to have outweighed the tailwinds of United States’ Federal Reserves, dovish monetary policy stance, reflective in their unimpressive year-to-date performance of a number of stocks in the EM space.
The listing of MTN Nigeria Plc, Africa’s biggest telecommunication firm by subscriber base, helped the Nigerian Stock Exchange (NSE) rallied for a while; however, profit-taking in the stock brought the market back to its lacklustre state.
This underscores the need for present administration to implement market-moving reforms to drive the domestic bourse.
Nigerian stocks contracted 59 basis points after Friday’s trading to worsen its year-to-date return to 1.15 percent, South African stocks has shed 5.61 percent since the year’s start, Ghana (-1.51%) and Kenya (-5.54%).
Emerging market stocks are up 2.1 percent year-to-date thanks to 5.64 percent return in Egypt, 10.11 percent in Bombay, India, 11 percent in Brazil, 16.23 percent and 20.83 percent in Shanghai and Shenzhen, both in China.
“We estimate our broader measure of net capital flows to Emerging Markets was -$2.8billion in April. A $21billion decrease relative to March is further evidence of negative sentiments following increased trade tensions”, the global finance body said.
Israel Odubola
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
