July flows to EM debt strong but stocks see outflow -IIF

Investor sentiment was weighed down by a hawkish Federal Reserve

  
Saudi riyal, yuan, Turkish lira, pound, U.S. dollar, euro and Jordanian dinar banknotes are seen in this illustration taken January 6, 2020. Image for illustrative purposes.

Saudi riyal, yuan, Turkish lira, pound, U.S. dollar, euro and Jordanian dinar banknotes are seen in this illustration taken January 6, 2020. Image for illustrative purposes.

REUTERS/Dado Ruvic

NEW YORK- Portfolio flows into emerging markets slowed sharply in July, data from the Institute of International Finance showed on Tuesday, mostly due to large monthly outflows from equities.

Investor sentiment was weighed down by a hawkish Federal Reserve and a regulatory crackdown in Beijing among other issues, the IIF said.

Foreign net flows to emerging market equity and debt portfolios slowed to $7.7 billion in July, including a 10-month low $10.5 billion outflow from EM equities.

Flows to hard currency debt swelled to $18.3 billion, around pre-pandemic levels.

This suggests that EM issuers are aiming to market debt before what they see as a looming increase in borrowing costs, according to Jonathan Fortun, economist at the IIF.

"Emerging markets remain vulnerable to tapering by the Federal Reserve, as less support for the U.S. economy could tighten financial conditions across the globe."

The Fed last week flagged talks around the eventual withdrawal of monetary policy support and said that despite a recent uptick in Covid-19 infections the U.S. economic recovery remains on track.

The net estimated $7.7 billion inflows in July compares with $23.7 billion inflows in June and $32.2 billion in July 2020, the data showed.

"Product of increased uncertainty, partly due to regulatory developments in China, equity flows turned negative during July," Fortun wrote.

The Shanghai Composite stock index fell 5.4% in July, the most for any month in over two years. South Korea's Kospi  fell 2.9% last month, the largest fall since March 2020, same as the 7% decline in EM stocks.

Chinese assets eked positive flows last month, however, with equities attracting $889 million and debt $959 million, IIF preliminary data showed.

(Reporting by Rodrigo Campos; Editing by Steve Orlofsky) ((rodrigo.campos@reuters.com; @RodrigoCampos))


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