Foreign investors withdrew USD 70.3 billion from emerging market assets in March, the largest monthly outflow since the start of the pandemic rout in March 2020, data from a global banking trade group showed.
Outflows from emerging equities, particularly in Asia, drove the losses, although foreign investors also withdrew from fixed income, the report from the Institute of International Finance (IIF) showed.
The data represent an abrupt turnabout from the “exceptionally large” January inflows and still-positive February flows, which IIF described as a sharp regime break following a major geopolitical shock. The USD 56 billion worth of outflows from emerging stocks was the largest such loss in at least 20 years, data showed.
That report included the first full month of flow data post-Iran war outbreak and showed that emerging Asia absorbed nearly the entire equity side of the larger reversal (after some healthy inflows earlier in the year). IIF senior economist Jonathan Fortun described this as reflecting the region’s vulnerability to higher oil prices and “technology-linked equity repositioning” in the report.
EM assets that had soared in the previous year and a half lost their lustre, siphoning cash from EM portfolios and choking off a wave of debt issuance to a trickle. For example, South Korean stocks rose nearly 50% in the first two months of this year, then lost more than a third of those gains once the war started. The International Monetary Fund cautioned that many EM countries now depend on foreign financing from hedge funds, pension funds and insurers, which could flee at the first sign of trouble.
However, “March did not resemble a uniform, system-wide stop across all EM assets,” Fortun wrote, describing it instead as a “concentrated risk-off episode.”
“March data do not yet point to a fully generalised EM funding event,” Fortun wrote.
Overall debt outflows, at USD 14.2 billion, were more limited, and even showed some bright spots, such as China, where inflows of USD 2.5 billion came in slightly above the prior month.