By Rodrigo Campos
NEW YORK (Reuters) – Non-residents pulled $13.8 billion from their emerging market portfolios in September as the prospect of higher interest rates in the developed world for a longer period continues to weigh on EM assets globally, a report showed on Friday.
With August having also seen negative flows, it was the first back-to-back month of outflows since a string of five months that ended in July 2022, according to a monthly report from the Institute of International Finance.
Debt portfolios posted their first monthly outflow since March at -$1.8 billion, while equities, at -$12.0 billion, saw a deceleration in negative flows from the -$21.5 billion shed in August.
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For equity portfolios excluding China, it was the largest monthly outflow since September 2022.
Similar to August, the selling pressure in EM portfolio stems from higher interest rates – and higher yielding assets – in developed markets, which typically affects allocation to the detriment of EMs.
“Recent market turmoil around the future path of monetary policy, along (with) the increasing sovereign yields have made a dent on the performance of non-resident outflows across Emerging Markets,” said IIF economist Jonathan Fortun.
“There is a prevailing notion that interest rates will remain elevated for an extended period. This has resulted in a weak performance of debt securities.”
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The International Monetary Fund said earlier this week it expects output growth in advanced economies to slow from 2.6% in 2022 to 1.5% this year and 1.4% in 2024 due in part to effects of monetary policy tightening.
Emerging Asia led overall outflows last month with a negative $8.1 billion print, followed by the Africa and Middle East region with a $4.5 billion outflow. Emerging Europe saw a $0.8 billion outflow and Latin America just $0.3 billion.
On the equities side all geographical regions posted outflows while debt posted inflows in Latam and emerging Asia.
Year-to-date estimates through September show a net $59 billion outflow from China including over $75 billion in outflows from debt portfolios, while emerging markets ex-China have seen $178 billion in net non-resident portfolio inflows.
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(Reporting by Rodrigo Campos; Editing by Chizu Nomiyama and Jonathan Oatis)
