Emerging markets (EM) bounced from one of its worst-performing months after portfolio flows hit $37.7 billion in September as non-resident portfolio flows continue in a pendular motion that has so far characterized the year.
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Equity flow and debt flows were $10.3 billion and $27.6 billion respectively while net capital flows into EM were $30.9 billion in August, according to a report by the Institute of International Finance (IIF).
The Washington-based institute noted that unlike in August where daily flows tracker recorded 18 out of 21 days of negative flows, September saw only 6 out of 21 days of negative flows.
China which accounts for a large chunk of flows saw $ 9.2 billion during September compared to $1.6 billion, 475 percent more than it recorded a month before.
Meanwhile, in a show of confidence in EM debt securities, inflows into the fixed income space rose to $27.6 billion in September although EM (excluding China) equity flow was $1.1 billion.
“We believe the outlook for equity flows to nonChina EM remains difficult given the large amount of hot money that has already gone to EM in recent years, which we see as having resulted in a positioning overhang, a structural drag on new inflows,” IIF said in the report.
Net Capital flows to Nigeria in August rose to $1.3 billion compared to $0.8 billion in July. Nigeria’s flow was higher than South Africa’s $0.8 billion although it was less than $1.5 billion by Egypt which saw a decline month-on-month.
With $2.1 Billion already seen in July and August, Nigeria might be set to rebound from a depressing $0.8 billion net capital flow in the second quarter of 2019 after it had seen $3.3 billion flow in the first three months of the year.
India saw $19.6 billion net capital flow in August, the most among the 23 Ems tracked. China had the worst, a negative $9.4 billion net flow.
IIF noted that the positive outcome was uniform across all regions. Debt flows in EM Asia were $13.3billion, followed by Latam ($6.3bn), EM Europe ($4.0bn) and AFME ($3.9bn). Regarding equity flows, EM Asia saw an inflow of $9.0billion (explained mainly by $9.0bn of inflows to China), with the other regions seeing only marginal gains.
“We estimate our broader measure of net capital flows to EM (including banking and FDI flows) was $30.9 billion in August, a sharp improvement from last month,” IIF said.
Since the start of the year MSCI Emerging Index, which tracks the performance of emerging market stocks, has risen some 4 percent.
A dovish stance by developed economies seen at the start of the year buoyed carry trade in emerging economies although an escalation of the trade war as the year progressed bit hard of EM.
An increase in the USChina trade tensions in May caused a rapid deterioration in global risk appetite, resulting in an important outflow episode.
While sentiment improved in June, a de-escalation of the trade conflict in August caused another outflow episode.
Potential triggers for further risk-off episodes proliferate, including further increases in trade tensions, IIF noted.
