China Outflows Drive Emerging Markets Downturn

Emerging markets suffered their first portfolio outflows in a year in March, driven by investors selling Chinese assets and growing anxiety over recent geopolitical events, a report by the Institute of International Finance (IIF) showed on Tuesday.

Foreign net portfolio outflows for emerging markets came to US$9.8 billion in March, IIF data showed, following a US$13.3 billion inflow in February. Developing stocks lost US$6.7 billion, while bonds saw US$3.1 billion depart.

IIF said outflows from China of US$11.2 billion in bonds and US$6.3 billion in stocks represented “an unprecedented dynamic”. March was the first time China assets saw outflows in equities since September 2020.

"While it is premature to draw any definitive conclusions, the timing of China outflows suggests foreign investors may be reevaluating their exposure and a rotation in preferences could start to take form," said Jonathan Fortun, an IIF economist, in the statement.

Emerging markets ex-China saw net inflows of US$8.2 billion to debt and a marginal outflow of less than US$400 million in equities. The March report didn't include specific figures for Russia. (Reuters)