EMs Set for $501 bn Net Out­flows in 2016

The Economic Times - - Markets: Beating Volatility -

Lon­don: Emerg­ing mar­ket stocks and bonds are set for another $501 bil­lion of net out­flows in 2016, de­spite a pick up in risk ap­petite in March, the In­sti­tute of In­ter­na­tional Fi­nance (IIF) said on Fri­day.

This fig­ure is down from $755 bil­lion of out­flows in 2015, with the im­prove­ment driven by some re­cov­ery in non-res­i­dent cap­i­tal in­flows. These are seen climb­ing to $560 bil­lion this year, up from $240 bil­lion in 2015. How­ever, heavy cap­i­tal out­flows by res­i­dents are ex­pected to keep over­all flows in neg­a­tive ter­ri­tory, the IIF said.

The Wash­ing­ton-based body, one of the most au­thor­i­ta­tive track­ers of for­eign cap­i­tal flows to and from the de­vel­op­ing world, noted that asset prices and in­flows had re­vived in March, helped by at­trac­tive EM val­u­a­tions and un­der­weight po­si­tions. MSCI’s bench­mark emerg­ing eq­ui­ties in­dex ral­lied13%, its best monthly per­for­mance since May 2009, with an es­ti­mated $36.8 bil­lion pumped into emerg­ing mar­kets stocks and bonds. This helped the asset class end the quar­ter with strong gains. How­ever, the EM re­vival would be mod­er­ated by con­tin­ued head­winds such as low com­mod­ity prices and a sec­u­lar shift away from man­u­fac­tur­ing to ser­vices, the IIF cau­tioned.

“De­spite re­duced tail risks, we do not see the im­prove­ments in over­all fun­da­men­tals in emerg­ing mar­ket economies that would be needed to un­der­pin a more ro­bust re­vival of EM flows,” it said.

More­over, val­u­a­tions are now less com­pelling af­ter the strong first quar­ter rally and un­der­weight po­si­tions are less ex­treme, it noted. Net out­flows will con­tinue to be dom­i­nated by China, with some $530 bil­lion pro­jected for 2016, down from $675 bil­lion last year, the IIF added. This should al­low re­serve losses to di­min­ish, help­ing to con­tain fears of a dis­or­derly ren­minbi de­pre­ci­a­tion, said IIF ex­ec­u­tive man­ag­ing di­rec­tor Hung Tran.

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