Outflows Point To 'Risk-Off' Brewing In Emerging Markets

• Large outflows from emerging market investments towards the end of September point to a big “risk-off” shift brewing, Institute of International Finance (IIF) economists say.
• Emerging markets sucked in $2.1Bn in portfolio flows in a month marked by fresh market turmoil, uncertainty arising from the U.S. election, a rejuvenated dollar, and uncertainty about the recovery from the coronavirus.
• But it said high-frequency outflows from emerging markets towards the end of the month were almost as big as in the 2013 “taper tantrum” or during 2015 when the Chinese yuan was devalued.
• IIF said it saw growing differentiation inflows to emerging markets, with some markets seeing outflows that continue to build, and increasing divergence between debt and equity flows.
• After a huge exodus from the asset class at the height of market turmoil caused by the pandemic in March, flows to emerging markets had been recovering somewhat as investor confidence in developing countries’ handling of the crisis improved.

(Source: Reuters)