• Friday, July 19, 2024
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Flows into EMs securities dip 18% in November but trade truce offers comfort

emerging markets (1)

Emerging markets (EMs) saw a double-digit slow down than in inflow into their securities in November but hopes of US and China seeing eye-to-eye on a long trade dispute is still supporting EMs recovery from an August decline, the International Institute of Finance (IIF) has said.

The Washington-based Institute noted that EMs securities attracted $20.3bn last month, about 18 percent less than it did in October as the year to date flow equity flow to EM excluding china turned negative.

“Flows to emerging markets continued their recent recovery from the slump in August, as optimism regarding a resolution of the US-China trade conflict persists,” said in its monthly flow-tracker report.

EMs securities had suffered a 34-month low when the escalation of the trade dispute between the United States and China combined with heightened fears of global economic slowdown saw investors pull out $13.8 billion from EM assets in August.

Talks of a trade truce between the world’s two biggest economies is expected to buoy Ems, and while the prospects are shaky, Bloomberg, citing people familiar with the matter, reports that progress towards a phase-one deal on the trade truce is still with the U.S. side expecting an agreement by the end of next week.

In the month, debt flows was $15.9 bn, while equity flows to EM excluding China turned negative to -$3.9 bn although Equity flows to China, a big recipient of the hot money, at $8.2 bn was almost doubled of its October figure.

According to the IIF, the decline in debt flows to emerging markets was broad-based in November, with all regions registering smaller inflows than in the previous month.

Debt flows in EM Asia were $7.4bn, followed by Latin America ($3.7 bn), Africa and the Middle East ($2.9 bn), and EM Europe ($1.9 bn).

For equity flows, only EM Asia and EM Europe saw inflows (of $7.3 bn and $0.6 bn, respectively). The other regions experienced outflows, ranging from $1.2 bn in Africa and the Middle East to $2.4 bn in Latin America.

IIF estimates a broader measure of net capital flows to EM (including banking and FDI flows) was -$23.4 bn in October, somewhat smaller than in the previous month, with China alone responsible for more than $14 bn in net outflows.

November “ represents the second consecutive month of weakening debt flows,” the report stated, highlighting an uncertainty on whether the downward trend would continue in December.

On a Year-to-date basis, emerging markets have attracted inflows of $261.3bn, which is 16 percent higher than over the same period in 2018 but about 26 lower than over the first 11 months of 2017.

“Heavy positioning as a result of a decade of strong flows may explain the only partial recovery from 2018, despite material easing by major Developed Markets central banks,” IIF said.