Emerging markets see portfolio inflows in October but investors rethink China -IIF

  • Emerging markets see portfolio inflows of $9.2 billion in October
  • Chinese fixed income records ninth straight month of capital outflows
  • Regional contributions: Asia $5.6 billion, Latam $2.4 billion, EU $2.3 billion

Nov 8 (Reuters) – Emerging markets had their second-best month for portfolio inflows this year in October, although China suffered a fresh wave of outflows as investors rethink their exposure to the country, the Institute said. of International Finance (IIF).

Overall, foreign investors added $9.2 billion to emerging markets portfolios last month, with fixed-income securities attracting $7.6 billion in the largest monthly inflows this year.

However, the breakdown showed that emerging markets outside of China attracted $18 billion. Meanwhile, China suffered overall outflows, losing $1.2 billion in October on fixed income securities.

Chinese bond markets have seen outflows every month since Russia invaded Ukraine in February, with outflows totaling $105.1 billion over nine months. Chinese equity portfolios lost $7.6 billion in October, the most since March.

In the first quarter, the IIF questioned whether the shift to capital outflows from China was a tactical move related to the Russian invasion or a change in investor strategy.

“Increasingly, this question is settled in favor of the latter, with market participants looking at China in a new light,” IIF economist Jonathan Fortun said in a report accompanying the flow data.

“This change reflects geopolitical concerns and concern that the government’s zero-COVID policy may weigh on China in the medium term.”

China’s zero-COVID approach, which is slowing the economy and fueling widespread frustration, was deemed “fully correct” by Chinese authorities over the weekend and is not expected to be significantly revised until a annual parliamentary session in March.

Fund managers have increasingly launched investment products in emerging markets or Asia without exposure to China to meet growing demand for such strategies from global investors.

However, some asset managers have argued that beaten Chinese assets, especially equities, are attractive.

Recent capital inflows have not offset outflows from emerging markets earlier in the year.

Overall emerging market bond and equity flows stand at -$6.2 billion for 2022, with Chinese flows alone digging an $82.8 billion hole since the start of the year .

Regional data from the IIF showed an inflow of $5.6 billion to Asia despite large outflows from China, while Latin America received some $2.6 billion and emerging Europe $2.3 billion more. The only region in the red last month was Africa and the Middle East, with $1.3 billion in releases.

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Reporting by Rodrigo Campos; edited by Jonathan Oatis and Mark Heinrich

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Robert D. Coleman