Capital flows to emerging markets are projected to slow to $981 billion in 2015, their lowest level since 2009, according to the IIF’s May report on Capital Flows to Emerging Markets.
“Weak EM growth performance is taking a heavy toll on capital inflows to EMs, which we now estimate at only $150 billion in Q1 2015, the lowest rate in six years”, said Charles Collyns, chief economist at the IIF. “We do project a moderate pickup of flows later in 2015 and 2016, but this depends on some strengthening of growth and no surprises from the Fed. Continued economic weakness or a bumpy Fed ride could lead to further stagnation of EM capital inflows.”
“A deterioration of secondary market liquidity and increased corporate indebtedness across emerging markets could exacerbate the fallout from a potential EM stress event,” said Hung Tran, executive managing director at the IIF. “In an environment of rising global interest rates, Fed tightening, EM currency depreciation, and slowing economic growth and capital flows, USD-denominated debt may become more difficult for many EM non-financial corporate companies to service and refinance their debt.”