Washington, D.C., August 27, 2014 - Following several months of buoyant inflows, portfolio investments in emerging markets slowed sharply in August, according to the latest Institute of International Finance EM Portfolio Flows Tracker.
Emerging markets are estimated to have received a mere $9 billion in August, after an average of $38 billion per month in May-July. Portfolio debt inflows were particularly affected, grinding to a halt in August.
New regional portfolio flow estimates for the month of August point to a reversal in portfolio flows to EM Europe (-$7.3 bn) and Africa (-$1.5 bn), and a slowdown in flows to Asia ($9.7 bn) and Latin America ($8.3 bn).
"The dip in flows in August may mark a cyclical turning point for EM capital flows," said Charles Collyns, the IIF's Chief Economist. "Emerging market stocks and bonds have been among the best-performing assets so far this year amid a surge of foreign portfolio investment. While the usual seasonal lull surely contributed to the weakness, the sharp slowdown in portfolio flows in August could also mark the beginning of a period of greater caution among global investors towards EMs. Looking ahead, investors need to strike a careful balance between positioning for favorable long-term prospects in EMs relative to mature markets while managing the risk of a near-term correction, related to shifts in risk appetite and uncertainty around the path of the Fed's exit from easy money."
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The Institute of International Finance is the global association of the financial industry, with close to 500 members from 70 countries. Its mission is to support the financial industry in the prudent management of risks; to develop sound industry practices; and to advocate for regulatory, financial and economic policies that are in the broad interests of its members and foster global financial stability and sustainable economic growth. Within its membership IIF counts commercial and investment banks, asset managers, insurance companies, sovereign wealth funds, hedge funds, central banks and development banks. For more information visit www.iif.com.