By Rodrigo Campos
NEW YORK (Reuters) -Foreigners added about $32.7 billion to their emerging market portfolios in March, a fifth consecutive month of overall foreign net flows to EMs, the Institute of International Finance said on Tuesday.
The IIF banking trade group said flows were positive for both bonds and equities last month, with equities absorbing $10.2 billion and debt $22.5 billion. The data showed it was the first time since September 2021 that China and ex China, bonds and equities, posted simultaneous monthly inflows.
The overall monthly figure compares with inflows of $20.5 billion in February and a $9.1 billion outflow in March of 2023.
Positive flows returned to both Chinese equities and debt for the first time since June, if only slightly. China stocks took in $1.7 billion and bonds $2.1 billion.
“EM ex-China debt has seen stronger flows, sustained mainly by large issuance by a few selected EMs and a positive impact from carry trade,” said IIF economist Jonathan Fortun.
“Moreover, market appetite for local currency debt across the EM complex has also aided the overall figure.”
Yet the outlook is cloudy, the IIF said, given the uncertainty surrounding the pace and even the direction of monetary policy in the United States.
“Emerging market currency returns will remain closely linked to the U.S. economy,” Fortun wrote in a statement. “A great amount of risk in the outlook remains, mainly related to further escalation on geopolitical conflicts, the return of inflation spikes and consequent more hawkish stance of the Fed.”
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Persistent inflation and higher-for-longer interest rates were cited as key risks to financial stability in the Federal Reserve’s latest survey of U.S. central bank contacts.
