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‘Wall of money’ is heading for emerging markets, IIF says

Investors bullish on emerging markets after withdrawing funds last year.
The sun sets over gantry cranes at the Jawaharlal Nehru Port in Navi Mumbai, Maharashtra, India. Picture: Dhiraj Singh/Bloomberg

Investors of almost every stripe appear to be turning more bullish on emerging markets after withdrawing funds last year, according to the Institute of International Finance.

High frequency flow trackers suggest a “wall of money” is coming back to developing markets due to a dovish Federal Reserve, thawing trade relations and easing concerns over global economic growth, IIF’s analysts Jonathan Fortun and Tariq Khan wrote in a research note published on March 1. “The hunt for yield is clearly underway again,” the report said.

Net capital flows — which cover portfolios, banking, direct investment, and other components of the financial account in a nation’s balance of payments — turned positive in January for the first time since July, IIF estimates show. The latest available data shows that EM portfolio inflows totaled $25.6 billion during February, a fourth consecutive month of net buying.

The improvement in sentiment has already helped emerging market stocks rebound 9% this year after slumping 17% in 2018. More than $10 trillion in equity value was wiped out from global markets in the last quarter of 2018 amid the ongoing trade spat between the US and China.

While demand for the asset class is recovering overall, Asia is yet to see the major benefits of emerging market inflows because events in the region make some higher-beta markets in Latin America and the Middle East more attractive, said Julia Raiskin, head of Asia Pacific investor sales and relationship management at Citigroup’s Markets and Securities Services.

“EM as an asset class has much better client interest and as we meet investors around the world many of them of them really feel strongly that global EM is an asset class that is due for better performance in 2019,” she said.

© 2019 Bloomberg L.P

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“wall of debt” more likely.

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