August 17, 2023 (MLN): Emerging markets (EM) securities saw a surge of inflows in July 2023, reaching $32.8 billion, of which EM Asia constituted strong inflows of $19bn, according to the latest Capital Flows Tracker report by the Institute of International Finance (IIF) published on August 10, 2023.
This marks the first month since September 2021 that all components of the tracker, including equity and debt flows, show positive results.
The report attributes the increase in portfolio flows to a more robust outlook for the US economy, lower inflation expectations, and positive momentum in equity markets.
China, in particular, posted strong inflows of $7.7bn in equities and $3bn in debt, breaking a six-month trend of outflows from its debt market.
The report also notes that diminished currency volatility and attractive local yield curves have made debt assets more appealing to foreign investors.
EM x/China debt recorded an inflow of $12.1bn in July, while EM x/China equity received an inflow of $10bn.
The tracker report expects the emerging market credit outlook to continue to improve as a soft landing for the US economy becomes more apparent, inflation eases and the geopolitical climate turns more market-friendly.
However, it also warns that region-specific factors, upcoming elections, and market surprises could derail the momentum that is building.
For July, the report also shows strong inflows in Latin America totaling around $7.8bn.
