EM Portfolio Outflows Worst Since Global Financial Crisis
Portfolio flows to emerging markets have had their worst quarter since the depths of the global financial crisis at the end of 2008, according to preliminary estimates by the Institute of International Finance, an industry association.
Non-resident investors in EM securities will have sold an estimated net $40bn worth of assets during the quarter ending on September 30, divided roughly evenly between bonds ($21bn) and equities ($19bn), according to the IIF.
The IIF said it had revised downwards its previous estimates for flows in July and August to result in three consecutive months of outflows from both asset classes during the quarter.
The outflows, if confirmed, suggest that the September 17 decision by the US Federal Reserve not to deliver a long-awaited rise in interest rates provided only a short-lived boost to EM inflows.
Higher rates in the US could be expected to attract portfolio investments away from emerging markets, so the decision not to raise rates was a relief to some investors.
But other investors and senior officials in some EM finance ministries and central banks complained that by postponing its decision the Fed was merely prolonging uncertainty.
The Fed cited slowing growth in China and other EMs as a reason for keeping its target Fed funds rate at 0.25 per cent, underscoring mounting concerns about the health of many EM economies.
The IIF estimated that foreign investors withdrew $4bn from EM equities and $6bn from EM bonds during September.
“Newly released source data for debt flows in August, and especially July, were substantially weaker than we previously estimated, bringing our estimate for these months down to -$3 and -$12 billion, respectively,” the IIF said in a statement.
“Dovish signals from the Fed after its September policy meeting gave a temporary boost to portfolio flows. . . While this turnaround has cushioned the outflows in September, it was only a short-lived rebound. EM outflows resumed in the week of September 21,” it said.