The COVID-19 shock has meant a sharp sudden stop for emerging markets, with our daily tracking of non-resident portfolio outflows at unprecedented levels.

Speculative positioning in the CFTC’s CoT report shows Dollar longs have scaled back sharply and are only modest at this point. Data from option markets suggest positioning may even be modestly short the Dollar versus the Euro. After many years of large Dollar longs in the foreign exchange market, we read these data as saying Dollar positioning is now essentially flat.

We unveiled a new EM positioning database late last year. Here we provide a further breakdown into equities and bonds, which allow us to zero in on the biggest EM positioning overhangs. The largest overhang, South Africa, is due to both in equal measure.

Markets spent 2018 debating if Turkey and Argentina are idiosyncratic, and the same debate is playing out now given the recent market sell-off. Our daily tracking of real money flows highlights broad-based weakness, where we see the EM positioning overhang as one underlying theme.

After a decade of super easy monetary policy in the G-3 countries, our data show that an EM positioning overhang may have built up, with successive dovish Fed shifts becoming less and less EM positive. Setting aside China, this latest rebound in flows to EM looks weak, with only Indonesia and Mexico seeing meaningful Q1 inflows.

We have unveiled a new database on EM real money positioning. We begin to add bank-intermediated flows to our database, which comove with real money flows in Turkey and Argentina. The EM positioning overhang may be greater than initially assumed.