The Institute of International Finance (IIF) has announced that the emerging economies attracted $36.8 billion dollars of international investment in March, with $17.9 billion earmarked for stock markets and $18.9 billion for bonds. This is the higest net inflow since June 2014.
As a point of reference, the average monthly inflow of funds to the emerging markets was $22 billion euros in 2010-2014. From the second half of 2014, there began to be some significant capital outflows, due to the fact there were clear signs that their economic growth was losing momentum and raw material prices were dropping. Although both factors are closely linked.
Geographically, $20.6 billion of the total investment inflow in March came from Asia, while $13.4 billion had its origin in LatAm.
In February, the emerging markets also received a positive net funds inflow ($5.4 billion, of which $5.2 billion was earmarked for bonds and $200 million for the stock markets). But until January, the inflow had been negative (-$7.5 billion in stock markets and -$8.8 billion in bonds).
There are three basic factors which explain the postive inflow of funds since February.
- The developed economies’ bonds are looking less attractive as their yields have declined significantly (higher prices).
The Fed’s “dovish” stance, which reduces the emerging markets’ risk premium (mainly related to its dollar-denominated debt).
- Attractive valuations, due to the fact that prices had fallen sharply since the start of the emerging markets’ sell-off towards mid-2014. Another contributing factor is the expectations for certain political changes (particularly Brazil) which would help to redirect these economies.