EM capital flows to fall sharply this year – study

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PARIS: Net capital flows to emerging economies will decline this year for the first time since the 2008 global financial crisis with foreign investment halving from last year, the Institute of International Finance (IIF) said on Thursday (Friday in Manila).

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“We estimate that net non-resident inflows will reach only $548 billion [489 billion euros] in 2015 down from $1,074 billion last year, sinking below levels recorded in 2008/09” in 30 such countries, the IIF report said.

Net capital outflows will be at $541 billion, it said.

“Unlike the 2008 crisis, the pullback from emerging markets has been driven primarily by internal factors, basically reflecting a sustained slowdown in EM growth and amplified by rising uncertainty about China’s economy and policies,” the IIF said.

“We project only a moderate rebound of EM capital flows in 2016 as structural factors continue to weigh on EM growth prospects,” it added.

The report also said market volatility could continue if the US Federal Reserve continued to raise interest rates and if China’s currency weakened further.

The health of China’s economy has become a key preoccupation for world markets. Global stock markets suffered their worst quarter since 2011, with trillions wiped of valuations since China devalued its yuan currency in August, sparking fears about the worldwide impact of China’s struggles.

The IIF said the countries “most in jeopardy from EM turbulence include those with large current account deficits, questionable macro policy frameworks, large corporate foreign exchange liabilities, and acute political uncertainties,” adding: “Brazil and Turkey combine these features.”

It said to add to the problems “private” outflows by residents from these countries would swell to a “historical high” of $1,089 billion this year.

“We estimate that net non-resident inflows will reach only $548 billion in 2015 down from $1,074 billion last year, sinking below levels recorded in 2008/09.” AFP

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