As worries have grown about a potential trade war between the U.S. and China and other geopolitical tensions, investors have sold stocks and bonds from emerging markets countries at the fastest pace since November 2016, a new survey from the Institute of International Finance shows.
Non-resident investors pulled $12.3 billion out of emerging markets investments in May, the largest drawdown in more than a year and just the second overall outflow for EM stocks and bonds since last November.
IIF said Tuesday that the outflows from emerging market portfolios were split evenly between debt and equities. This cuts year-to-date portfolio flows to the asset class to around $46 billion, well below the $134 billion of inflows during the same period in 2017.
The organization, which works with banks around the globe, noted that individual country factors were part of the reason for the flow of funds out of the smaller and traditionally more risky asset class, but investors were also prompted by a changing global landscape and particularly developments in mature markets like the United States.
“Against a backdrop of higher U.S. yields and a stronger dollar, a monthly diffusion index of flows to countries in our sample shows a recent broadening of outflows, suggesting that the risk-off environment is affecting a greater range of EM countries,” IIF said in a statement.
The outflows in May were concentrated in EM Asia (-$8.0 bn) and the Africa/Middle East region (-$4.7 bn) and they persisted throughout May. IIF’s Flows Alert, which tracks higher-than-normal movement of cash out of the asset class, was triggered by outflows at end of April and is still in effect, an IIF spokesman said.
“This marks the second longest alert we have on record following the seven-week period of outflows after the U.S. election in November 2016,” the group said.