Emerging markets see nine-fold jump in capital inflows in June
Flows to emerging markets rose to $32.1bn last month, says Institute of International Finance
CAPITAL flows to emerging markets securities jumped more than nine-fold in June to $32.1 billion, up from $3.5bn in May, according to the Institute of International Finance (IIF).
“Negative sentiment on emerging markets approached extreme levels during March, setting the stage for a period of stabilisation and more two-way discussions on risks and opportunities in the EM space,” Jonathan Fortun, economist at IIF, said in the institute’s latest Capital Flows Tracker report.
Debt flows represented $23.5 billion of the total, according to IIF data on nonresident portfolio flows to emerging markets.
“Debt flows continued their recovery, at a healthy pace... on the equity side, the negative trend which we observed last month was reversed,” Fortun said.
Equity inflows amounted to $9.5 billion last month, the report said.
Reversing an outflow trend, net inflows to emerging markets, excluding China equities, amounted to $3.4bn, while inflows to China amounted to $6.1 billion.
Among regions, emerging Asia attracted the most capital, registering inflows of $17.1 billion in June, followed by Latin America with $7.3 billion.
This comes as sovereign issuers from most emerging markets regions leverage lower costs and favourable maturities, the IIF said.
“We see this shift in sentiment as healthy, reflecting deeply discounted valuations in many places, which mean that adverse economic outcomes and weak growth are largely priced,” Fortun said.
“We are starting to see some of the more beaten down parts of the capital markets play catch-up and there is a great deal of focus on how sustained this trend will be and how broadly it is felt across emerging markets,” he said.
However, the ongoing tension between Washington and Beijing is weighing on sentiment about emerging markets as the US elections in November loom closer.
While sentiment metrics show a rebound in the outlook, hard data are still lagging behind, the report said.
Overall the shape of the recovery will depend on the ability of the emerging markets to put in place efficient policies to catalyse a recovery, according to the IIF.
“Moving forward, we see investors being more discerning regarding investment decisions towards EM,” Fortun said.
Globally, the coronavirus pandemic has infected more than 11 million people and killed more than 525,000, according to Johns Hopkins University, which tracks the spread of the virus. About 5.86 million people have recovered.
The pandemic has unleashed unprecedented disruption to the global economy.
However, economies in Europe, Asia, the Middle East and North America have gradually started opening four months after the World Health Organisation declared the COVID-19 outbreak a pandemic.
Purchasing managers’ indexes for June signaled a manufacturing rebound is under way in emerging markets, Bloomberg reported. Even though most countries are still in the contraction zone, with the PMI readings below 50, the scale of improvement over May suggests economic activity is picking up.
However, some countries are experiencing a surge in infections, particularly in Brazil and India. The US has nearly 2.8 million infections, the largest globally, and more than 129,000 deaths.