'Sudden Stopâ' Hammers Emerging-Market Investments Beyond China
Comment of the Day

January 12 2022

Commentary by Eoin Treacy

'Sudden Stopâ' Hammers Emerging-Market Investments Beyond China

This article from Bloomberg may be of interest to subscribers. Here is a section:

Fresh investments are disappearing from emerging markets that aren’t China as coronavirus variants threaten to derail recoveries. 

Foreign investors pulled $9.6 billion from developing-nation bonds outside China in December, the most outflows since March 2020 when the initial shock of the pandemic tore through markets, according to the Institute of International Finance.

“We see non-China EM in a de facto sudden stop,” economist Jonathan Fortun wrote in a Tuesday report. “The latest Omicron variant, an acceleration of Fed tapering, and stronger dollar carry additional risks for an already stressed EM flows picture going forward.”

Fortun says the split between China and other emerging markets comes down to investors betting that the world’s second-biggest economy will rebound faster than the rest.

China stocks attracted $12.5 billion in December, and its debt lured $10.1 billion, according to estimated non-resident portfolio flow data from the IIF. Emerging-market equities outside China brought in just $3.8 billion, IIF data show. 

Eoin Treacy's view

There is a real danger in reading too much into fund flow data that is a month old. The narrative can change in a matter of hours in this environment. The strong Dollar, supported by the expectation of tapering interest rate hikes and balance sheet run off, was the dominant theme for the last few months. It also assumes loose talk about multiple rate hikes can in fact be put into place.

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