Emerging Markets see positive capital inflows in July despite slowdown

Emerging market inflation hits near-six-year high

Emerging market stocks and debt posted a second month of positive flows even though offshore capital dwindled in July, slowing to around $15.1 bn, lower than the $29.2 bn in June, according to estimates by the International Institute of Finance (IIF).

“Investor appetite (was) underpinned by a falling dollar and an accommodative Federal Reserve,” said IIF. “The advance was limited by concern about a resurgence in virus cases and the dim global outlook for growth.”

Debt flows continued their recovery, reaching $13.2 bn while equity inflows to emerging markets outside China were $2.3 bn. Less than half-a-billion flowed to China on the heels of increased tensions between Washington and Beijing. Regionally, EM Asia was the most benefited region, registering inflows of $9.9 bn, followed by EM Europe ($2.0 bn), IIF said.

Since a historic capital outflow in March occasioned by the coronavirus pandemic and commodity price slump, interests in emerging markets have been focused on a period of stabilization and more twoway discussions on risks and opportunities in the EM space.

Inflows into the region even though unsteady and below PRE-COVID levels have been indicative of a recovery that is hoped will continue throughout the year in the absence of a second-wave of COVID-19 spread.

IIF noted that sovereign issuers from most EM regions continue to leverage lower costs and favourable maturities because of deeply discounted valuations in many places.

This has resulted in some of the more beaten down parts of the capital markets playing catch-up although the sustainability of the trend and broad-based nature of recovery across emerging markets remains a concern.

IIF noted that at the moment, the recovery has been partially driven by broad dollar weakness, but expectations of growth differentials remain a concern.