The Market Monitor Minding the Nation's Business
Net capital flows to emerging markets in 2015 will be negative for the first time since 1988, the Institute of International Finance (IIF) said in a report.
The institution estimated that, among the 30 emerging economies it has surveyed, there will be $540-billion net capital outflows this year, compared with net capital inflows of $32 billion in 2014.
The net capital outflows would continue at a moderate pace of $306 billion in 2016, on the expectation of the subdued growth prospects for the emerging market economies, as well as the US Federal Reserve’s (the Fed) policy tightening, the report said.
The institution expected the growth rate of emerging markets to reach only 3.5 percent this year, the lowest since the 2008 global financial crisis, and will moderately rise to 4.2 percent in 2016.
The IIF also warned of risks of high-level, non-financial corporate debt to gross domestic product ratio in emerging markets.
“As monetary policy continues to diverge and the Fed begins liftoff, countries with large amounts of corporate debt, especially in the US dollar, will face difficulties, with rising prospects for corporate distress, weakening capital investment and growth,” said Hung Tran, executive managing director at the IIF.
IIF said volatile market conditions have taken a toll on capital flows to emerging markets, with net non-resident portfolio flows in August fall-ing into negative territory for the first time in 2015.
According to the IIF’s latest EM Portfolio Flows Tracker, outflows were estimated at $4.5 billion in August, compared with inflows of $6.7 billion in July.
“Portfolio flows to emerg-ing markets have retreated sharply in the last few weeks,” said Charles Collyns, chief economist at the IIF.
“Emerging market inves-tors have been spooked by rising uncertainty about Chi-na, and stress has been exac-erbated by a combination of fundamental concerns about EM economic prospects and volatility in global financial markets,” it said.
Emerging market equi-ty flows fell to their lowest level since the 2013 taper tantrum at negative $8.7 bil-lion, while debt flows were estimated to have softened but remained positive at $4.2 billion in August.