The picture of China’s overseas direct investment (ODI) is quite different from many people’s impressions.  

The debate on U.S. sanctions on sovereign debt is expected to continue in '20. Low macroeconomic vulnerabilities will likely limit the impact on Russia. U.S. investors would lose out given investments in Russian domestic debt. Unintended consequences could also significantly shake up global markets.

Portfolio flows to EM stood at $28.9 bn in January. Equity and debt were -$0.7 bn and $29.7 bn, respectively. Net capital flows to EM reached -$33.1 bn in December.

Large amortization payments will leave Turkey exposed to rollover risk in 2020. The composition of amortization payments should alleviate some of the concerns. Net foreign borrowing will continue to be an important determinant of growth. Residents could withdraw from assets abroad if they fail to roll over maturing debt.

As ESG investing goes mainstream, the potential “carbon correction” in asset prices may prompt sizable capital reallocations; Achieving the SDGs will require more private sector funding, but better ESG data is needed to inform investment decisions; Low-income countries tend to be more vulnerable to climate shocks—but rising debt loads constrain their capacity to respond; Beyond climate in the “E” of ESG—more focus on financing to support biodiversity

South Africa and Mexico face significant fiscal risks from struggling SOEs. Both Eskom and Pemex are receiving sizable support from governments. Such risks prompt SARB and BANXICO to keep real rates above EM peers. A downgrade of sovereign credit ratings could lead to large portfolio outflows. However, risks to debt sustainability are higher in South Africa than Mexico.

The January 2020 IIF Global Regulatory Update provides updates on current work streams.