Foreigners pull money out of EM portfolios

Economist terms lockdowns, investment risk main drivers of capital outflows

NEW YORK:

Emerging market debt and equity portfolios saw foreign investor outflows for a second straight month in April, data from the Institute of International Finance showed on Tuesday, building on record outflows from China in the first quarter.

Portfolios posted a net outflow of $4 billion last month, compared to outflows of $7.8 billion in March and inflows of $39.8 billion in April 2021.

China saw a net outflow of $1 billion with debt posting outflows of $2.1 billion and equities a $1 billion inflow.

“A combination of Covid lockdowns, depreciation and perceived risk of investing in countries whose relationships with the West are complicated may be the main drivers of recent capital outflows from China,” Jonathan Fortun, economist at the IIF, said in a statement.

BlackRock said on Monday it cut its exposure to Chinese stocks and government bonds citing China’s ties to Russia, which have “created a new geopolitical concern that requires more compensation for holding Chinese assets”.

More broadly, JPMorgan said economic growth in emerging markets is set to slow “sharply” this quarter weighed by China, Russia and the spread of tighter monetary conditions.

Emerging markets excluding China saw net outflows of $2.9 billion, with $10.5 billion exiting equities, the most since March 2020, and $7.6 billion flowing into debt, most of which went to local currency bonds according to the IIF.

Published in The Express Tribune, May 11^th, 2022.

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