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bne October 2020 Companies & Markets I 21
ed that investment is returning to Emerging Markets (EMs) after a very large sell-off caused by the impact of multiple crises at the start of this year.
“We estimate that EM securities attracted around $2.1bn in August, lower than the $15.2bn in July,” reports IIF. “Gyrations in the US-China trade narrative, a fresh bout of market turmoil in some EMs and lingering questions on the post COVID-19 recovery path marked the dynamics of non- resident flows during August.”
Debt flows posted their first outflow reading since the March shock at -$2.3bn, reports IIF. On the equity side,
IIF says there were inflows to EM equities, excluding China, amounting to $3.8bn, while flows to China posted marginal gains of $0.6bn. Regionally, EM Asia was the most benefited region, registering inflows of $4.7bn, followed by Latin America ($0.7bn), with all the remaining regions posting outflows.
CE Total Capital Flows Tracker (Monthly, US$bn)
“The violence of the EM “sudden stop” in March is unparalleled. Non-resident portfolio outflows surpassed anything seen previously, including during the global financial crisis in 2008/9” Robin Brooks, managing director & chief economist at IIF, together with economist Jonathan Fortun said in a note. “However, unprecedented Fed easing, which first lifted US stock and credit markets, also made its way into emerging markets. EM currencies recovered some of their losses earlier in the year, net issuance of bonds abroad has been strong and – most important – our high frequency tracking of non-resident flows shifted positive in the second and third quarters of 2020.”
Flows to EM have recovered
But as August started many of these shocks were beginning to subside. The ruble has slid from an average of RUB63
to the dollar to an average of RUB73.3 in the two months of July and August, maintaining its value remarkably well, recent weakness notwithstanding, given the severity of the economic shocks.
Likewise, average oil prices fell from $63.65 for the month of January to $21.23 in April, but have since recovered to an average of $42.07 for the month of July. And Brent was trading at $45.61 at the time writing on September 2.
"Nevertheless, our data shows that the rebound in flows to EM is small compared to outflows earlier in the year. One
“The violence of the EM “sudden stop” in March is unparalleled. Non-resident portfolio outflows surpassed anything seen previously, including during the global financial crisis in 2008/9”
The Capital Economics Capital Flows Tracker is constructed using monthly trade and FX reserve data to give an early read on capital flows ahead of the release of official balance of payments data.
The latest issue of the tracker shows that EMs experienced net capital inflows for the first time since the crisis spread across the globe in July.
“Our Tracker points to net inflows of around $5bn, broadly similar to January and February. And the big picture is that capital flows have weathered the crisis remarkably well. One reason is that our Tracker incorporates FDI and “other” (usually banking sector) flows, as well as portfolio flows,” said Glossop.
EMs were hard hit by the perfect storm that hit markets at the end of February that led to a large sell-off. Then the Russians walked out of the OPEC+ production cut deal on March 6, causing the price of oil to collapse. That was followed by the coronavirus (COVID-19) outbreak in China being upgraded to global pandemic and causing countries around the world to go into lockdown by May.
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