Emerging Markets: Autumn of Capital Flows
2024-11-25
■ Non-resident portfolio flows to emerging markets fell sharply in October
■ In addition to China, which has seen capital outflows due to disappointment in its economic policies, India has also experienced substantial capital outflows
Since the Federal Open Market Committee (FOMC) decided to cut interest rates in September, long-term interest rates in the United States have continued to rise, the internal and external interest rate differentials have widened, and the dollar has strengthened. As of the 20th, the dollar index, which shows the value of the dollar against a basket of six major currencies, rose 3.17% in October and another 2.60% in November.
Affected by the strengthening of the dollar, capital flows to emerging markets have changed. According to the latest estimates of the Institute of International Finance (IIF), non-resident portfolio flows to emerging markets in October inflows of $1.89 billion. However, it has remained inflows for the 12th consecutive month; the inflows have dropped significantly compared to September (inflows of $56.37 billion). Although the bond market (inflows of $27.38 billion) still attracted a lot of capital, the stock market saw a large capital outflow (outflows of $25.5 billion). The monthly stock capital outflows reached the highest level since the global financial market turmoil caused by the epidemic in March 2020.
In late September, China announced policies to ease financial easing and support real estate and capital markets, which attracted massive capital inflows to China's stock market in September (inflows of US$24.76 billion). However, the subsequent comprehensive economic policies did not specify the specific project scale and expenditure amount, and policy expectations declined, resulting in capital outflows in October (outflows of US$8.97 billion). However, the cumulative capital inflows since September have remained significant, so it cannot be concluded entirely that policy expectations have been lost.
Another feature of capital outflows in October is that stock markets in countries other than China (outflows of US$16.53 billion) also recorded substantial capital outflows. Among them, India (outflows of US$10.945 billion) surpassed China to become the country with the most significant capital outflows, setting a record since data statistics began in 2005. Due to high growth expectations, the cessation of large-scale interest rate hikes in developed countries, and the alternative attraction of funds to China's real estate crisis, India has received large-scale capital inflows since the second half of 2022, especially in the stock market. It has become the focus of emerging market securities investment. However, capital outflows have occurred recently due to changes in China's policy expectations, rising U.S. bond interest rates, and a stronger dollar.
After reaching its peak at the end of September, the Sensex Index, India's main stock index, has stopped its upward trend since the second half of 2022. As of November 20, it has fallen by about 10% from its peak. Although it is still within the correction range of the past two years, if the trend of capital outflows continues, it needs to be more vigilant.
■ In addition to China, which has seen capital outflows due to disappointment in its economic policies, India has also experienced substantial capital outflows
Since the Federal Open Market Committee (FOMC) decided to cut interest rates in September, long-term interest rates in the United States have continued to rise, the internal and external interest rate differentials have widened, and the dollar has strengthened. As of the 20th, the dollar index, which shows the value of the dollar against a basket of six major currencies, rose 3.17% in October and another 2.60% in November.
Affected by the strengthening of the dollar, capital flows to emerging markets have changed. According to the latest estimates of the Institute of International Finance (IIF), non-resident portfolio flows to emerging markets in October inflows of $1.89 billion. However, it has remained inflows for the 12th consecutive month; the inflows have dropped significantly compared to September (inflows of $56.37 billion). Although the bond market (inflows of $27.38 billion) still attracted a lot of capital, the stock market saw a large capital outflow (outflows of $25.5 billion). The monthly stock capital outflows reached the highest level since the global financial market turmoil caused by the epidemic in March 2020.
In late September, China announced policies to ease financial easing and support real estate and capital markets, which attracted massive capital inflows to China's stock market in September (inflows of US$24.76 billion). However, the subsequent comprehensive economic policies did not specify the specific project scale and expenditure amount, and policy expectations declined, resulting in capital outflows in October (outflows of US$8.97 billion). However, the cumulative capital inflows since September have remained significant, so it cannot be concluded entirely that policy expectations have been lost.
Another feature of capital outflows in October is that stock markets in countries other than China (outflows of US$16.53 billion) also recorded substantial capital outflows. Among them, India (outflows of US$10.945 billion) surpassed China to become the country with the most significant capital outflows, setting a record since data statistics began in 2005. Due to high growth expectations, the cessation of large-scale interest rate hikes in developed countries, and the alternative attraction of funds to China's real estate crisis, India has received large-scale capital inflows since the second half of 2022, especially in the stock market. It has become the focus of emerging market securities investment. However, capital outflows have occurred recently due to changes in China's policy expectations, rising U.S. bond interest rates, and a stronger dollar.
After reaching its peak at the end of September, the Sensex Index, India's main stock index, has stopped its upward trend since the second half of 2022. As of November 20, it has fallen by about 10% from its peak. Although it is still within the correction range of the past two years, if the trend of capital outflows continues, it needs to be more vigilant.